x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 23-0691590 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
100 Crystal A Drive, Hershey, PA 17033 | ||
(Address of principal executive offices) (Zip Code) | ||
717-534-4200 | ||
(Registrant’s telephone number, including area code) | ||
Not Applicable | ||
(Former name, former address and former fiscal year, if changed since last report) |
Large accelerated filer | x | Accelerated filer | ¨ | Smaller reporting company | ¨ | |||
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Emerging growth company | ¨ |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Net sales | $ | 1,971,959 | $ | 1,879,678 | ||||
Cost of sales | 997,899 | 970,326 | ||||||
Gross profit | 974,060 | 909,352 | ||||||
Selling, marketing and administrative expense | 485,324 | 459,386 | ||||||
Long-lived asset impairment charges | — | 208,712 | ||||||
Business realignment costs | 8,224 | 44,017 | ||||||
Operating profit | 480,512 | 197,237 | ||||||
Interest expense, net | 29,339 | 23,741 | ||||||
Other (income) expense, net | 1,942 | 5,135 | ||||||
Income before income taxes | 449,231 | 168,361 | ||||||
Provision for income taxes | 98,512 | 70,113 | ||||||
Net income including noncontrolling interest | 350,719 | 98,248 | ||||||
Less: Net income (loss) attributable to noncontrolling interest | 516 | (26,796 | ) | |||||
Net income attributable to The Hershey Company | $ | 350,203 | $ | 125,044 | ||||
Net income per share—basic: | ||||||||
Common stock | $ | 1.71 | $ | 0.60 | ||||
Class B common stock | $ | 1.55 | $ | 0.55 | ||||
Net income per share—diluted: | ||||||||
Common stock | $ | 1.65 | $ | 0.58 | ||||
Class B common stock | $ | 1.55 | $ | 0.55 | ||||
Dividends paid per share: | ||||||||
Common stock | $ | 0.656 | $ | 0.618 | ||||
Class B common stock | $ | 0.596 | $ | 0.562 |
For the three months ended | ||||||||||||||||||||||||
April 1, 2018 | April 2, 2017 | |||||||||||||||||||||||
Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | Pre-Tax Amount | Tax (Expense) Benefit | After-Tax Amount | |||||||||||||||||||
Net income including noncontrolling interest | $ | 350,719 | $ | 98,248 | ||||||||||||||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||||||||||
Foreign currency translation adjustments | $ | (1,267 | ) | $ | — | (1,267 | ) | $ | 13,951 | $ | — | 13,951 | ||||||||||||
Pension and post-retirement benefit plans: | ||||||||||||||||||||||||
Net actuarial gain (loss) and prior service cost | — | — | — | (196 | ) | 74 | (122 | ) | ||||||||||||||||
Reclassification of tax effects relating to U.S. tax reform | — | (36,535 | ) | (36,535 | ) | — | — | — | ||||||||||||||||
Reclassification to earnings | 5,097 | (1,025 | ) | 4,072 | 7,153 | (2,711 | ) | 4,442 | ||||||||||||||||
Cash flow hedges: | ||||||||||||||||||||||||
Gains (losses) on cash flow hedging derivatives | 4,245 | (990 | ) | 3,255 | (1,499 | ) | 179 | (1,320 | ) | |||||||||||||||
Reclassification of tax effects relating to U.S. tax reform | — | (11,121 | ) | (11,121 | ) | — | — | — | ||||||||||||||||
Reclassification to earnings | 2,260 | (609 | ) | 1,651 | 3,033 | (1,166 | ) | 1,867 | ||||||||||||||||
Total other comprehensive income (loss), net of tax | $ | 10,335 | $ | (50,280 | ) | (39,945 | ) | $ | 22,442 | $ | (3,624 | ) | 18,818 | |||||||||||
Total comprehensive income including noncontrolling interest | $ | 310,774 | $ | 117,066 | ||||||||||||||||||||
Comprehensive income (loss) attributable to noncontrolling interest | 1,300 | (26,456 | ) | |||||||||||||||||||||
Comprehensive income attributable to The Hershey Company | $ | 309,474 | $ | 143,522 |
April 1, 2018 | December 31, 2017 | |||||||
ASSETS | (unaudited) | |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 476,434 | $ | 380,179 | ||||
Accounts receivable—trade, net | 614,295 | 588,262 | ||||||
Inventories | 782,460 | 752,836 | ||||||
Prepaid expenses and other | 397,307 | 280,633 | ||||||
Total current assets | 2,270,496 | 2,001,910 | ||||||
Property, plant and equipment, net | 2,119,016 | 2,106,697 | ||||||
Goodwill | 1,645,274 | 821,061 | ||||||
Other intangibles | 1,032,848 | 369,156 | ||||||
Other assets | 262,095 | 251,879 | ||||||
Deferred income taxes | 3,069 | 3,023 | ||||||
Total assets | $ | 7,332,798 | $ | 5,553,726 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 519,988 | $ | 523,229 | ||||
Accrued liabilities | 623,709 | 676,134 | ||||||
Accrued income taxes | 12,263 | 17,723 | ||||||
Short-term debt | 2,246,485 | 559,359 | ||||||
Current portion of long-term debt | 303,062 | 300,098 | ||||||
Total current liabilities | 3,705,507 | 2,076,543 | ||||||
Long-term debt | 2,059,934 | 2,061,023 | ||||||
Other long-term liabilities | 435,186 | 438,939 | ||||||
Deferred income taxes | 142,516 | 45,656 | ||||||
Total liabilities | 6,343,143 | 4,622,161 | ||||||
Stockholders’ equity: | ||||||||
The Hershey Company stockholders’ equity | ||||||||
Preferred stock, shares issued: none at April 1, 2018 and December 31, 2017 | — | — | ||||||
Common stock, shares issued: 299,281,967 at April 1, 2018 and December 31, 2017 | 299,281 | 299,281 | ||||||
Class B common stock, shares issued: 60,619,777 at April 1, 2018 and December 31, 2017 | 60,620 | 60,620 | ||||||
Additional paid-in capital | 925,965 | 924,978 | ||||||
Retained earnings | 6,634,316 | 6,371,082 | ||||||
Treasury—common stock shares, at cost: 150,559,192 at April 1, 2018 and 149,040,927 at December 31, 2017 | (6,593,579 | ) | (6,426,877 | ) | ||||
Accumulated other comprehensive loss | (354,475 | ) | (313,746 | ) | ||||
Total—The Hershey Company stockholders’ equity | 972,128 | 915,338 | ||||||
Noncontrolling interest in subsidiary | 17,527 | 16,227 | ||||||
Total stockholders’ equity | 989,655 | 931,565 | ||||||
Total liabilities and stockholders’ equity | $ | 7,332,798 | $ | 5,553,726 |
Three Months Ended | |||||||
April 1, 2018 | April 2, 2017 | ||||||
Operating Activities | |||||||
Net income including noncontrolling interest | $ | 350,719 | $ | 98,248 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 74,416 | 64,952 | |||||
Stock-based compensation expense | 10,458 | 12,122 | |||||
Deferred income taxes | 2,521 | (14,780 | ) | ||||
Impairment of long-lived assets (see Note 8) | — | 208,712 | |||||
Write-down of equity investments | 434 | — | |||||
Other | 9,055 | 11,512 | |||||
Changes in assets and liabilities, net of business acquisitions and divestitures: | |||||||
Accounts receivable—trade, net | (9,882 | ) | (14,398 | ) | |||
Inventories | (11,266 | ) | (49,726 | ) | |||
Prepaid expenses and other current assets | 7,309 | (31,232 | ) | ||||
Accounts payable and accrued liabilities | (146,623 | ) | (124,664 | ) | |||
Accrued income taxes | 82,231 | 76,779 | |||||
Contributions to pension and other benefit plans | (7,449 | ) | (11,576 | ) | |||
Other assets and liabilities | (9,866 | ) | 8,513 | ||||
Net cash provided by operating activities | 352,057 | 234,462 | |||||
Investing Activities | |||||||
Capital additions (including software) | (60,133 | ) | (33,297 | ) | |||
Proceeds from sales of property, plant and equipment | 112 | 561 | |||||
Equity investments in tax credit qualifying partnerships | (6,281 | ) | (7,948 | ) | |||
Business acquisition, net of cash and cash equivalents acquired | (915,457 | ) | — | ||||
Net cash used in investing activities | (981,759 | ) | (40,684 | ) | |||
Financing Activities | |||||||
Net increase (decrease) in short-term debt | 1,686,816 | (146,604 | ) | ||||
Repayment of long-term debt | (607,922 | ) | (94 | ) | |||
Repayment of tax receivable obligation | (42,500 | ) | — | ||||
Cash dividends paid | (134,300 | ) | (128,017 | ) | |||
Repurchase of common stock | (178,073 | ) | — | ||||
Exercise of stock options | 1,884 | 17,841 | |||||
Net cash provided by (used in) financing activities | 725,905 | (256,874 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | 52 | 1,160 | |||||
Increase (decrease) in cash and cash equivalents | 96,255 | (61,936 | ) | ||||
Cash and cash equivalents, beginning of period | 380,179 | 296,967 | |||||
Cash and cash equivalents, end of period | $ | 476,434 | $ | 235,031 | |||
Supplemental Disclosure | |||||||
Interest paid | $ | 38,323 | $ | 33,732 | |||
Income taxes paid | 12,817 | 7,532 |
Preferred Stock | Common Stock | Class B Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Common Stock | Accumulated Other Comprehensive Income (Loss) | Noncontrolling Interests in Subsidiaries | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
Balance, December 31, 2017 | — | 299,281 | 60,620 | 924,978 | 6,371,082 | (6,426,877 | ) | (313,746 | ) | 16,227 | 931,565 | |||||||||||||||||||||||||
Net income | 350,203 | 516 | 350,719 | |||||||||||||||||||||||||||||||||
Other comprehensive income | 6,927 | 784 | 7,711 | |||||||||||||||||||||||||||||||||
Dividends (including dividend equivalents): | ||||||||||||||||||||||||||||||||||||
Common Stock, $0.656 per share | (98,495 | ) | (98,495 | ) | ||||||||||||||||||||||||||||||||
Class B Common Stock, $0.596 per share | (36,130 | ) | (36,130 | ) | ||||||||||||||||||||||||||||||||
Stock-based compensation | 10,474 | 10,474 | ||||||||||||||||||||||||||||||||||
Exercise of stock options and incentive-based transactions | (9,487 | ) | 11,371 | 1,884 | ||||||||||||||||||||||||||||||||
Repurchase of common stock | (178,073 | ) | (178,073 | ) | ||||||||||||||||||||||||||||||||
Reclassification of tax effects relating to U.S. tax reform | 47,656 | (47,656 | ) | — | ||||||||||||||||||||||||||||||||
Balance, April 1, 2018 | $ | — | $ | 299,281 | $ | 60,620 | $ | 925,965 | $ | 6,634,316 | $ | (6,593,579 | ) | $ | (354,475 | ) | $ | 17,527 | $ | 989,655 |
Three Months Ended | |||
April 2, 2017 | |||
Reclassified from: | |||
Cost of sales | $ | 2,792 | |
Selling, marketing and administrative expense | 2,514 | ||
Reclassified to Other (income) expense, net | $ | 5,306 |
Accounts receivable | $ | 41,152 | |
Other current assets | 35,509 | ||
Plant, property and equipment, net | 71,093 | ||
Goodwill | 939,388 | ||
Other intangible assets | 682,000 | ||
Other non-current assets | 1,049 | ||
Accounts payable | (32,394 | ) | |
Accrued liabilities | (109,565 | ) | |
Current debt | (610,836 | ) | |
Other current liabilities | (2,931 | ) | |
Non-current deferred income taxes | (93,859 | ) | |
Non-current liabilities | (5,149 | ) | |
Net assets acquired | $ | 915,457 |
North America | International and Other | Total | ||||||||||
Balance at December 31, 2017 | $ | 799,929 | $ | 21,132 | $ | 821,061 | ||||||
Acquired during the period (see Note 2) | 939,388 | — | 939,388 | |||||||||
Reclassified to assets held for sale (see Note 7) | (109,064 | ) | — | (109,064 | ) | |||||||
Foreign currency translation and other | (4,399 | ) | (1,712 | ) | (6,111 | ) | ||||||
Balance at April 1, 2018 | $ | 1,625,854 | $ | 19,420 | $ | 1,645,274 |
April 1, 2018 | December 31, 2017 | |||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||||
Intangible assets subject to amortization: | ||||||||||||||||
Trademarks | $ | 915,672 | $ | (41,556 | ) | $ | 277,473 | $ | (37,510 | ) | ||||||
Customer-related | 157,052 | (34,199 | ) | 128,182 | (34,659 | ) | ||||||||||
Patents | 16,771 | (15,942 | ) | 17,009 | (15,975 | ) | ||||||||||
Total | 1,089,495 | (91,697 | ) | 422,664 | (88,144 | ) | ||||||||||
Intangible assets not subject to amortization: | ||||||||||||||||
Trademarks | 35,050 | 34,636 | ||||||||||||||
Total other intangible assets | $ | 1,032,848 | $ | 369,156 |
April 1, 2018 | December 31, 2017 | |||||||
1.60% Notes due 2018 | $ | 300,000 | $ | 300,000 | ||||
4.125% Notes due 2020 | 350,000 | 350,000 | ||||||
8.8% Debentures due 2021 | 84,715 | 84,715 | ||||||
2.625% Notes due 2023 | 250,000 | 250,000 | ||||||
3.20% Notes due 2025 | 300,000 | 300,000 | ||||||
2.30% Notes due 2026 | 500,000 | 500,000 | ||||||
7.2% Debentures due 2027 | 193,639 | 193,639 | ||||||
3.375% Notes due 2046 | 300,000 | 300,000 | ||||||
Capital lease obligations | 98,282 | 99,194 | ||||||
Net impact of interest rate swaps, debt issuance costs and unamortized debt discounts | (13,640 | ) | (16,427 | ) | ||||
Total long-term debt | 2,362,996 | 2,361,121 | ||||||
Less—current portion | 303,062 | 300,098 | ||||||
Long-term portion | $ | 2,059,934 | $ | 2,061,023 |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Interest expense | $ | 32,853 | $ | 24,954 | ||||
Capitalized interest | (1,299 | ) | (984 | ) | ||||
Interest expense | 31,554 | 23,970 | ||||||
Interest income | (2,215 | ) | (229 | ) | ||||
Interest expense, net | $ | 29,339 | $ | 23,741 |
April 1, 2018 | December 31, 2017 | |||||||||||||||
Assets (1) | Liabilities (1) | Assets (1) | Liabilities (1) | |||||||||||||
Derivatives designated as cash flow hedging instruments: | ||||||||||||||||
Foreign exchange contracts | $ | 3,013 | $ | — | $ | 423 | $ | 1,427 | ||||||||
Derivatives designated as fair value hedging instruments: | ||||||||||||||||
Interest rate swap agreements | — | 2,499 | — | 1,897 | ||||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||||
Commodities futures and options (2) | 194 | 6,424 | 390 | 3,054 | ||||||||||||
Deferred compensation derivatives | — | 393 | 1,581 | — | ||||||||||||
Foreign exchange contracts | — | 74 | 31 | — | ||||||||||||
194 | 6,891 | 2,002 | 3,054 | |||||||||||||
Total | $ | 3,207 | $ | 9,390 | $ | 2,425 | $ | 6,378 |
(1) | Derivatives assets are classified on our balance sheet within prepaid expenses and other as well as other assets. Derivative liabilities are classified on our balance sheet within accrued liabilities and other long-term liabilities. |
(2) | As of April 1, 2018, amounts reflected on a net basis in liabilities were assets of $59,650 and liabilities of $65,152, which are associated with cash transfers receivable or payable on commodities futures contracts reflecting the change in quoted market prices on the last trading day for the period. The comparable amounts reflected on a net basis in liabilities at December 31, 2017 were assets of $48,505 and liabilities of $50,179. At April 1, 2018 and December 31, 2017, the remaining amount reflected in assets and liabilities related to the fair value of other non-exchange traded derivative instruments, respectively. |
Non-designated Hedges | Cash Flow Hedges | |||||||||||||||||||||||
Gains (losses) recognized in income (a) | Gains (losses) recognized in other comprehensive income (“OCI”) (effective portion) | Gains (losses) reclassified from accumulated OCI into income (effective portion) (b) | ||||||||||||||||||||||
2018 | 2017 | 2018 | 2017 | 2018 | 2017 | |||||||||||||||||||
Commodities futures and options | $ | 66,590 | $ | (5,536 | ) | $ | — | $ | — | $ | — | $ | (438 | ) | ||||||||||
Foreign exchange contracts | (152 | ) | (95 | ) | 4,245 | (1,499 | ) | 136 | (172 | ) | ||||||||||||||
Interest rate swap agreements | — | — | — | — | (2,396 | ) | (2,423 | ) | ||||||||||||||||
Deferred compensation derivatives | (393 | ) | 1,277 | — | — | — | — | |||||||||||||||||
Total | $ | 66,045 | $ | (4,354 | ) | $ | 4,245 | $ | (1,499 | ) | $ | (2,260 | ) | $ | (3,033 | ) |
(a) | Gains (losses) recognized in income for non-designated commodities futures and options contracts were included in cost of sales. Gains (losses) recognized in income for non-designated foreign currency forward exchange contracts and deferred compensation derivatives were included in selling, marketing and administrative expenses. |
(b) | Gains (losses) reclassified from AOCI into income were included in cost of sales for commodities futures and options contracts and for foreign currency forward exchange contracts designated as hedges of purchases of inventory or other productive assets. Other gains (losses) for foreign currency forward exchange contracts were included in selling, marketing and administrative expenses. Losses reclassified from AOCI into income for interest rate swap agreements were included in interest expense. |
Level 1 – Based on unadjusted quoted prices for identical assets or liabilities in an active market. |
Level 2 – Based on observable market-based inputs or unobservable inputs that are corroborated by market data. |
Level 3 – Based on unobservable inputs that reflect the entity's own assumptions about the assumptions that a market participant would use in pricing the asset or liability. |
Assets (Liabilities) | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
April 1, 2018: | ||||||||||||||||
Derivative Instruments: | ||||||||||||||||
Assets: | ||||||||||||||||
Foreign exchange contracts (1) | $ | — | $ | 3,013 | $ | — | $ | 3,013 | ||||||||
Commodities futures and options (4) | 194 | — | — | 194 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign exchange contracts (1) | — | 74 | — | 74 | ||||||||||||
Interest rate swap agreements (2) | — | 2,499 | — | 2,499 | ||||||||||||
Deferred compensation derivatives (3) | — | 393 | — | 393 | ||||||||||||
Commodities futures and options (4) | 6,424 | — | — | 6,424 | ||||||||||||
December 31, 2017: | ||||||||||||||||
Assets: | ||||||||||||||||
Foreign exchange contracts (1) | $ | — | $ | 454 | $ | — | $ | 454 | ||||||||
Deferred compensation derivatives (3) | — | 1,581 | — | 1,581 | ||||||||||||
Commodities futures and options (4) | 390 | — | — | 390 | ||||||||||||
Liabilities: | ||||||||||||||||
Foreign exchange contracts (1) | — | 1,427 | — | 1,427 | ||||||||||||
Interest rate swap agreements (2) | — | 1,897 | — | 1,897 | ||||||||||||
Commodities futures and options (4) | 3,054 | — | — | 3,054 |
(1) | The fair value of foreign currency forward exchange contracts is the difference between the contract and current market foreign currency exchange rates at the end of the period. We estimate the fair value of foreign currency forward exchange contracts on a quarterly basis by obtaining market quotes of spot and forward rates for contracts with similar terms, adjusted where necessary for maturity differences. |
(2) | The fair value of interest rate swap agreements represents the difference in the present value of cash flows calculated at the contracted interest rates and at current market interest rates at the end of the period. We calculate the fair value of interest rate swap agreements quarterly based on the quoted market price for the same or similar financial instruments. |
(3) | The fair value of deferred compensation derivatives is based on quoted prices for market interest rates and a broad market equity index. |
(4) | The fair value of commodities futures and options contracts is based on quoted market prices. |
Fair Value | Carrying Value | |||||||||||||||
April 1, 2018 | December 31, 2017 | April 1, 2018 | December 31, 2017 | |||||||||||||
Current portion of long-term debt | $ | 302,418 | $ | 299,430 | $ | 303,062 | $ | 300,098 | ||||||||
Long-term debt | 2,063,730 | 2,113,296 | 2,059,934 | 2,061,023 | ||||||||||||
Total | $ | 2,366,148 | $ | 2,412,726 | $ | 2,362,996 | $ | 2,361,121 |
• | Select China facilities that were taken out of operation and classified as assets held for sale during the first quarter of 2017 in connection with the 2016 Operational Optimization Program. |
• | Licensing rights for a non-core trademark relating to a brand marketed outside of the U.S. that met the held for sale criteria in the first quarter of 2018. The sale of these licensing rights was completed in April of 2018. |
• | Assets and liabilities comprising a portion of the recently acquired Amplify business that met the held for sale criteria in the first quarter 2018. |
Assets held for sale, included in prepaid expenses and other assets | ||||
Accounts receivable | $ | 25,001 | ||
Inventories | 8,804 | |||
Prepaid expenses and other | 2,827 | |||
Long-lived assets | 182,354 | |||
Non-current assets | 13,008 | |||
$ | 231,994 | |||
Liabilities held for sale, included in accrued liabilities | ||||
Accounts payable and accrued liabilities | $ | 26,804 | ||
Other long-term liabilities | 2,114 | |||
$ | 28,918 |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Margin for Growth Program: | ||||||||
Severance | $ | 4,048 | $ | 29,567 | ||||
Accelerated depreciation | 717 | — | ||||||
Other program costs | 10,088 | 4,822 | ||||||
Operational Optimization Program: | ||||||||
Severance | — | 13,828 | ||||||
Other program costs | 1,098 | (1,229 | ) | |||||
Total | $ | 15,951 | $ | 46,988 |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Cost of sales | $ | 2,214 | $ | 490 | ||||
Selling, marketing and administrative expense | 5,513 | 2,481 | ||||||
Business realignment costs | 8,224 | 44,017 | ||||||
Costs associated with business realignment activities | $ | 15,951 | $ | 46,988 |
Total | |||
Liability balance at December 31, 2017 | $ | 38,992 | |
2018 business realignment charges (1) | 13,215 | ||
Cash payments | (22,353 | ) | |
Other, net | 669 | ||
Liability balance at April 1, 2018 (reported within accrued and other long-term liabilities) | $ | 30,523 |
(1) | The costs reflected in the liability roll-forward represent employee-related and certain third-party service provider charges. These costs do not include items charged directly to expense, such as accelerated depreciation and amortization and certain of the third-party charges associated with various programs, as those items are not reflected in the business realignment liability in our Consolidated Balance Sheets. |
Pension Benefits | Other Benefits | |||||||||||||||
Three Months Ended | Three Months Ended | |||||||||||||||
April 1, 2018 | April 2, 2017 | April 1, 2018 | April 2, 2017 | |||||||||||||
Service cost | $ | 5,335 | $ | 5,174 | $ | 58 | $ | 65 | ||||||||
Interest cost | 7,839 | 10,299 | 1,732 | 2,208 | ||||||||||||
Expected return on plan assets | (14,766 | ) | (14,354 | ) | — | — | ||||||||||
Amortization of prior service (credit) cost | (1,799 | ) | (1,456 | ) | 209 | 187 | ||||||||||
Amortization of net loss | 6,687 | 8,422 | — | — | ||||||||||||
Total net periodic benefit cost | $ | 3,296 | $ | 8,085 | $ | 1,999 | $ | 2,460 |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Pre-tax compensation expense | $ | 10,458 | $ | 12,122 | ||||
Related income tax benefit | 2,604 | 3,818 |
Stock Options | Shares | Weighted-Average Exercise Price (per share) | Weighted-Average Remaining Contractual Term | Aggregate Intrinsic Value | |||
Outstanding as of December 31, 2017 | 5,921,062 | $89.06 | 5.8 years | ||||
Granted | 917,610 | $99.90 | |||||
Exercised | (169,356 | ) | $50.07 | ||||
Forfeited | (68,104 | ) | $101.12 | ||||
Outstanding as of April 1, 2018 | 6,601,212 | $91.44 | 6.1 years | $ | 71,544 | ||
Options exercisable as of April 1, 2018 | 4,336,884 | $86.58 | 4.7 years | $ | 67,353 |
Three Months Ended | ||||||
April 1, 2018 | April 2, 2017 | |||||
Dividend yields | 2.3 | % | 2.4 | % | ||
Expected volatility | 16.6 | % | 17.2 | % | ||
Risk-free interest rates | 2.8 | % | 2.2 | % | ||
Expected term in years | 6.6 | 6.8 |
Performance Stock Units and Restricted Stock Units | Number of units | Weighted-average grant date fair value for equity awards (per unit) | |||
Outstanding as of December 31, 2017 | 923,364 | $103.11 | |||
Granted | 302,947 | $98.27 | |||
Performance assumption change (1) | (113,461 | ) | $101.59 | ||
Vested | (157,152 | ) | $105.83 | ||
Forfeited | (31,181 | ) | $105.47 | ||
Outstanding as of April 1, 2018 | 924,517 | $102.09 |
(1) | Reflects the net number of PSUs above and below target levels based on the performance metrics. |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Units granted | 302,947 | 351,793 | ||||||
Weighted-average fair value at date of grant | $ | 98.27 | $ | 111.28 | ||||
Monte Carlo simulation assumptions: | ||||||||
Estimated values | $ | 29.17 | $ | 46.85 | ||||
Dividend yields | 2.6 | % | 2.3 | % | ||||
Expected volatility | 20.4 | % | 20.4 | % |
• | North America - This segment is responsible for our traditional chocolate and non-chocolate confectionery market position, as well as our grocery and growing snacks market positions, in the United States and Canada. This includes developing and growing our business in chocolate and non-chocolate confectionery, pantry, food service and other snacking product lines. |
• | International and Other - International and Other is a combination of all other operating segments that are not individually material, including those geographic regions where we operate outside of North America. We currently have operations and manufacture product in China, Mexico, Brazil, India and Malaysia, |
Three Months Ended | |||||||||
April 1, 2018 | April 2, 2017 | ||||||||
Net sales: | |||||||||
North America | $ | 1,751,688 | $ | 1,677,146 | |||||
International and Other | 220,271 | 202,532 | |||||||
Total | $ | 1,971,959 | $ | 1,879,678 | |||||
Segment income: | |||||||||
North America | $ | 534,426 | $ | 552,759 | |||||
International and Other | 17,680 | 1,723 | |||||||
Total segment income (1) | 552,106 | 554,482 | |||||||
Unallocated corporate expense (2) | 123,967 | 118,333 | |||||||
Unallocated mark-to-market gains on commodity derivatives | (96,250 | ) | (17,088 | ) | |||||
Long-lived asset impairment charges | — | 208,712 | |||||||
Costs associated with business realignment activities | 15,951 | 46,988 | |||||||
Acquisition-related costs | 27,926 | 300 | |||||||
Operating profit | 480,512 | 197,237 | |||||||
Interest expense, net | 29,339 | 23,741 | |||||||
Other (income) expense, net | 1,942 | 5,135 | |||||||
Income before income taxes | $ | 449,231 | $ | 168,361 |
(1) | Segment income for the three months ended April 2, 2017 has been revised to conform to the current definition of segment income, which has been updated for the exclusion of certain pension-related costs. |
(2) | Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance, and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense, and (d) other gains or losses that are not integral to segment performance. |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in income | $ | (66,590 | ) | $ | 5,536 | |||
Net losses on commodity derivative positions reclassified from unallocated to segment income | (29,660 | ) | (22,624 | ) | ||||
Net gains on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative gains | $ | (96,250 | ) | $ | (17,088 | ) |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
North America | $ | 47,985 | $ | 41,237 | ||||
International and Other | 14,288 | 12,966 | ||||||
Corporate (1) | 12,143 | 10,749 | ||||||
Total | $ | 74,416 | $ | 64,952 |
(1) | Corporate includes non-cash asset-related accelerated depreciation and amortization related to business realignment activities, as discussed in Note 8. Such amounts are not included within our measure of segment income. |
Three Months Ended April 1, 2018 | ||||||
Shares | Dollars | |||||
In thousands | ||||||
Shares repurchased in the open market under pre-approved share repurchase programs | 1,406,093 | $ | 140,000 | |||
Shares repurchased to replace Treasury Stock issued for stock options and incentive compensation | 385,461 | 38,073 | ||||
Total share repurchases | 1,791,554 | 178,073 | ||||
Shares issued for stock options and incentive compensation | (273,289 | ) | $ | (11,372 | ) | |
Net change | 1,518,265 | $ | 166,701 |
Noncontrolling Interest | |||
Balance, December 31, 2017 | $ | 16,227 | |
Net income attributable to noncontrolling interest | 516 | ||
Other comprehensive income - foreign currency translation adjustments | 784 | ||
Balance, April 1, 2018 | $ | 17,527 |
Three Months Ended | ||||||||||||||||
April 1, 2018 | April 2, 2017 | |||||||||||||||
Common Stock | Class B Common Stock | Common Stock | Class B Common Stock | |||||||||||||
Basic earnings per share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of distributed earnings (cash dividends paid) | $ | 98,170 | $ | 36,130 | $ | 93,949 | $ | 34,068 | ||||||||
Allocation of undistributed earnings | 157,952 | 57,951 | (2,183 | ) | (790 | ) | ||||||||||
Total earnings—basic | $ | 256,122 | $ | 94,081 | $ | 91,766 | $ | 33,278 | ||||||||
Denominator (shares in thousands): | ||||||||||||||||
Total weighted-average shares—basic | 150,114 | 60,620 | 152,313 | 60,620 | ||||||||||||
Earnings Per Share—basic | $ | 1.71 | $ | 1.55 | $ | 0.60 | $ | 0.55 | ||||||||
Diluted earnings per share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of total earnings used in basic computation | $ | 256,122 | $ | 94,081 | $ | 91,766 | $ | 33,278 | ||||||||
Reallocation of total earnings as a result of conversion of Class B common stock to Common stock | 94,081 | — | 33,278 | — | ||||||||||||
Reallocation of undistributed earnings | — | (343 | ) | — | (25 | ) | ||||||||||
Total earnings—diluted | $ | 350,203 | $ | 93,738 | $ | 125,044 | $ | 33,253 | ||||||||
Denominator (shares in thousands): | ||||||||||||||||
Number of shares used in basic computation | 150,114 | 60,620 | 152,313 | 60,620 | ||||||||||||
Weighted-average effect of dilutive securities: | ||||||||||||||||
Conversion of Class B common stock to Common shares outstanding | 60,620 | — | 60,620 | — | ||||||||||||
Employee stock options | 844 | — | 1,265 | — | ||||||||||||
Performance and restricted stock units | 377 | — | 324 | — | ||||||||||||
Total weighted-average shares—diluted | 211,955 | 60,620 | 214,522 | 60,620 | ||||||||||||
Earnings Per Share—diluted | $ | 1.65 | $ | 1.55 | $ | 0.58 | $ | 0.55 |
Three Months Ended | ||||||||
April 1, 2018 | April 2, 2017 | |||||||
Write-down of equity investments in partnerships qualifying for tax credits | $ | 434 | $ | — | ||||
Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans | (98 | ) | 5,306 | |||||
Other (income) expense, net | 1,606 | (171 | ) | |||||
Total | $ | 1,942 | $ | 5,135 |
April 1, 2018 | December 31, 2017 | |||||||
Inventories: | ||||||||
Raw materials | $ | 257,079 | $ | 224,940 | ||||
Goods in process | 125,401 | 93,627 | ||||||
Finished goods | 569,767 | 614,945 | ||||||
Inventories at FIFO | 952,247 | 933,512 | ||||||
Adjustment to LIFO | (169,787 | ) | (180,676 | ) | ||||
Total inventories | $ | 782,460 | $ | 752,836 | ||||
Prepaid expenses and other: | ||||||||
Prepaid expenses | $ | 32,158 | $ | 128,735 | ||||
Assets held for sale | 231,994 | 21,124 | ||||||
Other current assets | 133,155 | 130,774 | ||||||
Total prepaid expenses and other | $ | 397,307 | $ | 280,633 | ||||
Property, plant and equipment: | ||||||||
Land | $ | 109,147 | $ | 108,300 | ||||
Buildings | 1,221,515 | 1,214,158 | ||||||
Machinery and equipment | 2,972,871 | 2,925,353 | ||||||
Construction in progress | 220,757 | 212,912 | ||||||
Property, plant and equipment, gross | 4,524,290 | 4,460,723 | ||||||
Accumulated depreciation | (2,405,274 | ) | (2,354,026 | ) | ||||
Property, plant and equipment, net | $ | 2,119,016 | $ | 2,106,697 | ||||
Other assets: | ||||||||
Capitalized software, net | $ | 108,153 | $ | 104,881 | ||||
Other non-current assets | 153,942 | 146,998 | ||||||
Total other assets | $ | 262,095 | $ | 251,879 | ||||
Accrued liabilities: | ||||||||
Payroll, compensation and benefits | $ | 126,557 | $ | 190,863 | ||||
Advertising and promotion | 285,970 | 305,107 | ||||||
Liabilities held for sale | 28,918 | — | ||||||
Other | 182,264 | 180,164 | ||||||
Total accrued liabilities | $ | 623,709 | $ | 676,134 | ||||
Other long-term liabilities: | ||||||||
Post-retirement benefits liabilities | $ | 212,873 | $ | 215,320 | ||||
Pension benefits liabilities | 38,799 | 39,410 | ||||||
Other | 183,514 | 184,209 | ||||||
Total other long-term liabilities | $ | 435,186 | $ | 438,939 | ||||
Accumulated other comprehensive loss: | ||||||||
Foreign currency translation adjustments | $ | (93,888 | ) | $ | (91,837 | ) | ||
Pension and post-retirement benefit plans, net of tax | (201,989 | ) | (169,526 | ) | ||||
Cash flow hedges, net of tax | (58,598 | ) | (52,383 | ) | ||||
Total accumulated other comprehensive loss | $ | (354,475 | ) | $ | (313,746 | ) |
• | Overview |
• | Non-GAAP Information |
• | Consolidated Results of Operations |
• | Segment Results |
• | Liquidity and Capital Resources |
Reconciliation of Certain Non-GAAP Financial Measures | |||||||
Consolidated results | Three Months Ended | ||||||
In thousands except per share data | April 1, 2018 | April 2, 2017 | |||||
(Revised) | |||||||
Reported gross profit | $ | 974,060 | $ | 909,352 | |||
Derivative mark-to-market gains | (96,250 | ) | (17,088 | ) | |||
Business realignment activities | 2,214 | 490 | |||||
Acquisition-related costs | 4,962 | — | |||||
Non-GAAP gross profit | $ | 884,986 | $ | 892,754 | |||
Reported operating profit | $ | 480,512 | $ | 197,237 | |||
Derivative mark-to-market gains | (96,250 | ) | (17,088 | ) | |||
Business realignment activities | 15,951 | 46,988 | |||||
Acquisition-related costs | 27,926 | 300 | |||||
Long-lived asset impairment charges | — | 208,712 | |||||
Non-GAAP operating profit | $ | 428,139 | $ | 436,149 | |||
Reported provision for income taxes | $ | 98,512 | $ | 70,113 | |||
Derivative mark-to-market (gains) losses* | (8,941 | ) | 1,199 | ||||
Business realignment activities* | 3,827 | 11,471 | |||||
Acquisition-related costs* | 5,403 | 114 | |||||
Long-lived asset impairment charges* | — | 45,201 | |||||
Non-GAAP provision for income taxes | $ | 98,801 | $ | 128,098 | |||
Reported net income | $ | 350,203 | $ | 125,044 | |||
Derivative mark-to-market gains | (87,309 | ) | (18,287 | ) | |||
Business realignment activities | 12,124 | 35,517 | |||||
Acquisition-related costs | 22,523 | 186 | |||||
Long-lived asset impairment charges | — | 163,511 | |||||
Noncontrolling interest share of business realignment and impairment charges | 456 | (26,666 | ) | ||||
Non-GAAP net income | $ | 297,997 | $ | 279,305 | |||
Reported EPS - Diluted | $ | 1.65 | $ | 0.58 | |||
Derivative mark-to-market gains | (0.41 | ) | (0.09 | ) | |||
Business realignment activities | 0.06 | 0.17 | |||||
Acquisition-related costs | 0.11 | — | |||||
Long-lived asset impairment charges | — | 0.76 | |||||
Noncontrolling interest share of business realignment and impairment charges | — | (0.12 | ) | ||||
Non-GAAP EPS - Diluted | $ | 1.41 | $ | 1.30 |
Three Months Ended | |||||
April 1, 2018 | April 2, 2017 | ||||
(Revised) | |||||
As reported gross margin | 49.4 | % | 48.4 | % | |
Non-GAAP gross margin (1) | 44.9 | % | 47.5 | % | |
As reported operating profit margin | 24.4 | % | 10.5 | % | |
Non-GAAP operating profit margin (2) | 21.7 | % | 23.2 | % | |
As reported effective tax rate | 21.9 | % | 41.6 | % | |
Non-GAAP effective tax rate (3) | 24.9 | % | 31.5 | % |
(1) | Calculated as non-GAAP gross profit as a percentage of net sales for each period presented. |
(2) | Calculated as non-GAAP operating profit as a percentage of net sales for each period presented. |
(3) | Calculated as non-GAAP provision for income taxes as a percentage of non-GAAP income before taxes (calculated as non-GAAP operating profit minus non-GAAP interest expense, net plus or minus non-GAAP other (income) expense, net). |
Three Months Ended April 1, 2018 | ||||||||
Percentage Change as Reported | Impact of Foreign Currency Exchange | Percentage Change on Constant Currency Basis | ||||||
North America segment | ||||||||
Canada | 8.7 | % | 4.9 | % | 3.8 | % | ||
Total North America segment | 4.4 | % | 0.2 | % | 4.2 | % | ||
International and Other segment | ||||||||
Mexico | 16.4 | % | 9.4 | % | 7.0 | % | ||
Brazil | 8.2 | % | (3.9 | )% | 12.1 | % | ||
India | 31.0 | % | 4.8 | % | 26.2 | % | ||
Greater China | 7.2 | % | 6.3 | % | 0.9 | % | ||
Total International and Other segment | 8.8 | % | 2.4 | % | 6.4 | % | ||
Total Company | 4.9 | % | 0.5 | % | 4.4 | % |
Three Months Ended | Percent | ||||||||||
April 1, 2018 | April 2, 2017 | Change | |||||||||
In millions of dollars except per share amounts | |||||||||||
Net Sales | $ | 1,972.0 | $ | 1,879.7 | 4.9 | % | |||||
Cost of Sales | 997.9 | 970.3 | 2.8 | % | |||||||
Gross Profit | 974.1 | 909.4 | 7.1 | % | |||||||
Gross Margin | 49.4 | % | 48.4 | % | |||||||
SM&A Expense | 485.3 | 459.4 | 5.6 | % | |||||||
SM&A Expense as a percent of net sales | 24.6 | % | 24.4 | % | |||||||
Long-Lived Asset Impairment Charges | — | 208.7 | NM | ||||||||
Business Realignment Costs | 8.2 | 44.0 | (81.3 | )% | |||||||
Operating Profit | 480.5 | 197.2 | 143.6 | % | |||||||
Operating Profit Margin | 24.4 | % | 10.5 | % | |||||||
Interest Expense, Net | 29.3 | 23.7 | 23.6 | % | |||||||
Other (Income) Expense, Net | 1.9 | 5.1 | (62.2 | )% | |||||||
Provision for Income Taxes | 98.5 | 70.1 | 40.5 | % | |||||||
Effective Income Tax Rate | 21.9 | % | 41.6 | % | |||||||
Net Income Including Noncontrolling Interest | 350.7 | 98.2 | 257.0 | % | |||||||
Less: Net Income (Loss) Attributable to Noncontrolling Interest | 0.5 | (26.8 | ) | NM | |||||||
Net Income Attributable to The Hershey Company | $ | 350.2 | $ | 125.0 | 180.1 | % | |||||
Net Income Per Share—Diluted | $ | 1.65 | $ | 0.58 | 184.5 | % | |||||
Note: Percentage changes may not compute directly as shown due to rounding of amounts presented above. | |||||||||||
NM = not meaningful. |
Three Months Ended | |||||||||
April 1, 2018 | April 2, 2017 | ||||||||
Net Sales: | |||||||||
North America | $ | 1,751,688 | $ | 1,677,146 | |||||
International and Other | 220,271 | 202,532 | |||||||
Total | $ | 1,971,959 | $ | 1,879,678 | |||||
Segment Income: | |||||||||
North America | $ | 534,426 | $ | 552,759 | |||||
International and Other | 17,680 | 1,723 | |||||||
Total segment income (1) | 552,106 | 554,482 | |||||||
Unallocated corporate expense (2) | 123,967 | 118,333 | |||||||
Unallocated mark-to-market gains on commodity derivatives (3) | (96,250 | ) | (17,088 | ) | |||||
Long-lived asset impairment charges | — | 208,712 | |||||||
Costs associated with business realignment activities | 15,951 | 46,988 | |||||||
Acquisition-related costs | 27,926 | 300 | |||||||
Operating profit | 480,512 | 197,237 | |||||||
Interest expense, net | 29,339 | 23,741 | |||||||
Other (income) expense, net | 1,942 | 5,135 | |||||||
Income before income taxes | $ | 449,231 | $ | 168,361 |
(1) | Segment income for the three months ended April 2, 2017 has been revised to conform to the current definition of segment income, which has been updated for the exclusion of certain pension-related costs. |
(2) | Includes centrally-managed (a) corporate functional costs relating to legal, treasury, finance and human resources, (b) expenses associated with the oversight and administration of our global operations, including warehousing, distribution and manufacturing, information systems and global shared services, (c) non-cash stock-based compensation expense and (d) other gains or losses that are not integral to segment performance. |
(3) | Net (gains) losses on mark-to-market valuation of commodity derivative positions recognized in unallocated derivative (gains) losses. See Note 12 to the Consolidated Financial Statements. |
Three Months Ended | Percent | ||||||||||
April 1, 2018 | April 2, 2017 | Change | |||||||||
In millions of dollars | |||||||||||
Net sales | $ | 1,751.7 | $ | 1,677.1 | 4.4 | % | |||||
Segment income | 534.4 | 552.8 | (3.3 | )% | |||||||
Segment margin | 30.5 | % | 33.0 | % |
Three Months Ended | Percent | ||||||||||
April 1, 2018 | April 2, 2017 | Change | |||||||||
In millions of dollars | |||||||||||
Net sales | $ | 220.3 | $ | 202.5 | 8.8 | % | |||||
Segment income | 17.7 | 1.7 | 926.1 | % | |||||||
Segment margin | 8.0 | % | 0.9 | % |
Three Months Ended | ||||||||
In millions of dollars | April 1, 2018 | April 2, 2017 | ||||||
Net cash provided by (used in): | ||||||||
Operating activities | $ | 352.1 | $ | 234.5 | ||||
Investing activities | (981.8 | ) | (40.7 | ) | ||||
Financing activities | 725.9 | (256.9 | ) | |||||
Effect of exchange rate changes on cash and cash equivalents | — | 1.1 | ||||||
Increase (decrease) in cash and cash equivalents | $ | 96.2 | $ | (62.0 | ) |
• | Net income adjusted for non-cash charges to operations (including depreciation, amortization, stock-based compensation, deferred income taxes, long-lived asset charges, write-down of equity investments and other charges) contributed $67 million of additional cash flow in 2018 relative to 2017. |
• | Prepaid expenses and other current assets generated cash of $7 million in 2018, compared to a use of cash of $31 million in 2017. This $38 million fluctuation was mainly driven by the timing of payments to outside vendors and service providers. |
• | Working capital (comprised of trade accounts receivable, inventory, accounts payable and accrued liabilities) consumed cash of $168 million in 2018 and $189 million in 2017. This $21 million fluctuation was mainly due to lower investments in inventory resulting from a shorter Easter season as compared to prior year. This benefit was partially offset by additional spending necessary to settle certain accrued liabilities acquired in conjunction with the Amplify acquisition, specifically Amplify's acquisition-related costs and accelerated equity compensation. |
• | Capital spending. Capital expenditures, including capitalized software, primarily to support capacity expansion, innovation and cost savings, were $60.1 million in the first three months of 2018 compared to $33.3 million in the same period of 2017. For full year 2018, we expect capital expenditures, including capitalized software, to approximate $355 million to $375 million. |
• | Business Acquisition. In January 2018, we acquired Amplify for $915 million, net of cash acquired. We had no acquisition or divestiture activity in the comparable 2017 period. Further details regarding our business acquisition activity are provided in Note 2 to the Unaudited Consolidated Financial Statements. |
• | Investments in partnerships qualifying for tax credits. We make investments in partnership entities that in turn make equity investments in projects eligible to receive federal historic and energy tax credits. We invested approximately $6.3 million in the first three months of 2018, compared to $7.9 million in the same period of 2017. |
• | Short-term borrowings, net. In addition to utilizing cash on hand, we use short-term borrowings (commercial paper and bank borrowings) to fund seasonal working capital requirements and ongoing business needs. During the first three months of 2018, we generated cash flow of $1.7 billion through the issuance of short-term commercial paper, partially offset by payments in short-term foreign borrowings. We utilized the proceeds from the issuance of commercial paper to fund the Amplify acquisition and repayment of Amplify's outstanding debt owed under its existing credit agreement. During the first three months of 2017, we reduced commercial paper borrowings by $126 million and repaid $19 million of short-term foreign borrowings. |
• | Long-term debt borrowings and repayments. During the first three months of 2018, we repaid $607.9 million of debt assumed in connection with the Amplify acquisition, including all of the outstanding debt owed by Amplify under its existing credit agreement. We had minimal long-term repayment activity during the first three months of 2017. |
• | Tax receivable obligation. In connection with the Amplify acquisition, the Company agreed to make a payment to the counterparty of a tax receivable agreement. During the first three months of 2018, we paid $42.5 million of the tax receivable obligation. |
• | Share repurchases. We used cash for total share repurchases of $178 million during the first three months of 2018 pursuant to our practice of replenishing shares issued for stock options and incentive compensation, as well as shares repurchased in the open market under pre-approved share repurchase programs. We had no share repurchases during the first three months of 2017. |
• | Dividend payments. Total dividend payments to holders of our Common Stock and Class B Common Stock were $134.3 million during the first three months of 2018, an increase of $6.3 million compared to $128.0 million in the same period of 2017. |
• | Proceeds from the exercise of stock options. We received $1.9 million from employee exercises of stock options, net of employee taxes withheld from share-based awards, during the first three months of 2018, a decrease of $15.9 million compared to $17.8 million in the same period of 2017. |
• | Issues or concerns related to the quality and safety of our products, ingredients or packaging could cause a product recall and/or result in harm to the Company’s reputation, negatively impacting our operating results; |
• | Increases in raw material and energy costs along with the availability of adequate supplies of raw materials could affect future financial results; |
• | Price increases may not be sufficient to offset cost increases and maintain profitability or may result in sales volume declines associated with pricing elasticity; |
• | Market demand for new and existing products could decline; |
• | Increased marketplace competition could hurt our business; |
• | Disruption to our manufacturing operations or supply chain could impair our ability to produce or deliver finished products, resulting in a negative impact on our operating results; |
• | Our financial results may be adversely impacted by the failure to successfully execute or integrate acquisitions, divestitures and joint ventures; |
• | Changes in governmental laws and regulations could increase our costs and liabilities or impact demand for our products; |
• | Political, economic and/or financial market conditions could negatively impact our financial results; |
• | Our international operations may not achieve projected growth objectives, which could adversely impact our overall business and results of operations; |
• | Disruptions, failures or security breaches of our information technology infrastructure could have a negative impact on our operations; |
• | We might not be able to hire, engage and retain the talented global workforce we need to drive our growth strategies; |
• | We may not fully realize the expected costs savings and/or operating efficiencies associated with our strategic initiatives or restructuring programs, which may have an adverse impact on our business; |
• | Complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations; and |
• | Such other matters as discussed in our 2017 Annual Report on Form 10-K. |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2) | ||||||||||
(in thousands of dollars) | ||||||||||||||
January 1 through January 28 | — | $ | — | — | $ | 200,000 | ||||||||
January 29 through February 25 | 790,000 | $ | 99.75 | 790,000 | $ | 121,195 | ||||||||
February 25 through April 1 | 1,001,554 | $ | 99.11 | 616,093 | $ | 60,000 | ||||||||
Total | 1,791,554 | $ | 99.40 | 1,406,093 |
Exhibit Number | Description | |
* | Filed herewith | |
** | Furnished herewith |
THE HERSHEY COMPANY | ||||
(Registrant) | ||||
Date: | April 26, 2018 | /s/ Patricia A. Little | ||
Patricia A. Little | ||||
Senior Vice President, Chief Financial Officer | ||||
(Principal Financial Officer) | ||||
Date: | April 26, 2018 | /s/ Javier H. Idrovo | ||
Javier H. Idrovo | ||||
Chief Accounting Officer | ||||
(Principal Accounting Officer) |
Three Months Ended | |||||||
April 1, 2018 | April 2, 2017 | ||||||
Earnings: | |||||||
Income before income taxes | $ | 449,231 | $ | 168,361 | |||
Add (deduct): | |||||||
Fixed charges | 36,674 | 27,702 | |||||
Amortization of capitalized interest | 269 | 233 | |||||
Capitalized interest | (1,299 | ) | (984 | ) | |||
Earnings as adjusted | $ | 484,875 | $ | 195,312 | |||
Fixed Charges: | |||||||
Interest expensed and capitalized | $ | 32,454 | $ | 24,954 | |||
Amortization of deferred debt issuance costs | 399 | 398 | |||||
Portion of rents representative of the interest factor (a) | 3,821 | 2,350 | |||||
Total fixed charges | $ | 36,674 | $ | 27,702 | |||
Ratio of earnings to fixed charges | 13.22 | 7.05 |
(a) | Portion of rents representative of the interest factor consists of one-third of rental expense for operating leases. |
1. | I have reviewed this Quarterly Report on Form 10-Q of The Hershey Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/s/ MICHELE G. BUCK |
Michele G. Buck Chief Executive Officer |
April 26, 2018 |
1. | I have reviewed this Quarterly Report on Form 10-Q of The Hershey Company; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
/S/ PATRICIA A. LITTLE |
Patricia A. Little Chief Financial Officer |
April 26, 2018 |
Date: | April 26, 2018 | /s/ MICHELE G. BUCK | |
Michele G. Buck Chief Executive Officer | |||
Date: | April 26, 2018 | /s/ PATRICIA A. LITTLE | |
Patricia A. Little Chief Financial Officer |
DOCUMENT AND ENTITY INFORMATION - USD ($) |
3 Months Ended | ||
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Apr. 01, 2018 |
Apr. 20, 2018 |
Jun. 30, 2017 |
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Document Information [Line Items] | |||
Entity registrant name | HERSHEY CO | ||
Entity central index key | 0000047111 | ||
Current fiscal year end date | --12-31 | ||
Entity filer category | Large Accelerated Filer | ||
Document type | 10-Q | ||
Document period end date | Apr. 01, 2018 | ||
Document fiscal year focus | 2018 | ||
Document fiscal period focus | Q1 | ||
Amendment flag | false | ||
Entity well-known seasoned issuer | Yes | ||
Entity voluntary filers | No | ||
Entity current reporting status | Yes | ||
Entity public float | $ 14,885,931,198 | ||
Common stock | |||
Document Information [Line Items] | |||
Entity common stock, shares outstanding (shares) | 148,647,172 | ||
Class B common stock | |||
Document Information [Line Items] | |||
Entity common stock, shares outstanding (shares) | 60,619,777 |
CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares |
Apr. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
Preferred stock, shares issued (shares) | 0 | 0 |
Treasury stock, shares (shares) | 150,559,192 | 149,040,927 |
Common stock | ||
Common stock, shares issued (shares) | 299,281,967 | 299,281,967 |
Class B common stock | ||
Common stock, shares issued (shares) | 60,619,777 | 60,619,777 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - 3 months ended Apr. 01, 2018 - USD ($) $ in Thousands |
Total |
Common stock |
Class B common stock |
Preferred Stock |
Common Stock
Common stock
|
Common Stock
Class B common stock
|
Additional Paid-in Capital |
Retained Earnings |
Retained Earnings
Common stock
|
Retained Earnings
Class B common stock
|
Treasury Common Stock |
Accumulated Other Comprehensive Income (Loss) |
Noncontrolling Interests in Subsidiaries |
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Beginning balance, stockholders' equity at Dec. 31, 2017 | $ 931,565 | $ 0 | $ 299,281 | $ 60,620 | $ 924,978 | $ 6,371,082 | $ (6,426,877) | $ (313,746) | $ 16,227 | ||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||||||||
Net income attributable to The Hershey Company | 350,203 | 350,203 | |||||||||||
Net income (loss) attributable to noncontrolling interests | 516 | 516 | |||||||||||
Net income including noncontrolling interest | 350,719 | ||||||||||||
Other Comprehensive Income (Loss), before Reclassifications, Net of Tax | 7,711 | 6,927 | 784 | ||||||||||
Dividends (including dividend equivalents): | |||||||||||||
Common Stock | $ (98,495) | $ (36,130) | $ (98,495) | $ (36,130) | |||||||||
Stock-based compensation | 10,474 | 10,474 | |||||||||||
Exercise of stock options and incentive-based transactions | 1,884 | (9,487) | 11,371 | ||||||||||
Repurchase of common stock | (178,073) | (178,073) | |||||||||||
Reclassification of tax effects relating to U.S. tax reform | 0 | 47,656 | (47,656) | ||||||||||
Ending balance, stockholders' equity at Apr. 01, 2018 | $ 989,655 | $ 0 | $ 299,281 | $ 60,620 | $ 925,965 | $ 6,634,316 | $ (6,593,579) | $ (354,475) | $ 17,527 |
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares |
3 Months Ended | |
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Apr. 01, 2018 |
Apr. 02, 2017 |
|
Common stock | ||
Dividends paid per share (USD per share) | $ 0.656 | $ 0.618 |
Class B common stock | ||
Dividends paid per share (USD per share) | $ 0.596 | $ 0.562 |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and the noncontrolling shareholders do not have substantive participating rights, or we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. The financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. Operating results for the quarter ended April 1, 2018 may not be indicative of the results that may be expected for the year ending December 31, 2018 because of seasonal effects on our business. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017 (our “2017 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters. Revenue Recognition The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including chocolate, sweets, mints and other grocery and snack offerings. We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon delivery to the customer or other customer-designated delivery point. Shipping and handling costs incurred to deliver product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The amount of consideration we expect to receive and revenue we recognize includes estimates of variable consideration, including costs for trade promotional programs, consumer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. We review and update these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in first quarter of 2018 and 2017 resulting from updated estimates of revenue for prior year product sales were not significant. We also recognize a minor amount of royalty income (less than 1% of our consolidated net sales) from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur. The majority of our products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. See Note 12 for revenues reported by geographic segment, which is consistent with how we organize and manage our operations. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On January 1, 2018, we adopted the requirements of ASC Topic 606 and all the related amendments to all of our contracts using the modified retrospective method. Upon completing our implementation assessment of Topic ASC 606, we concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has also not been restated and continues to be reported under the accounting standards in effect for those periods. Additional disclosures required by ASC Topic 606 are presented within the aforementioned Revenue Recognition policy disclosure. In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized when the intra-entity transfer occurs rather than deferring recognition of income tax consequences until the transfer was made with an outside party. We adopted the provisions of this ASU in the first quarter of 2018. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements. In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715). This ASU requires an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if presented, or disclosed separately. In addition, only the service cost component may be eligible for capitalization where applicable. The amendments should be applied on a retrospective basis. We adopted the provisions of this ASU in the first quarter of 2018, with retrospective adjustment to the comparative period determined using the previously disclosed service cost and other costs from our prior year pension and other post-retirement benefit plan footnote. As a result, the following amounts were reclassified in the first quarter of 2017 to correspond to the current year presentation:
The adoption of this ASU had no impact on our consolidated balance sheets or statements of cash flows. In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a company to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (“U.S. tax reform”) on items within accumulated other comprehensive income (“AOCI”) to retained earnings. We adopted the provisions of this ASU in the first quarter of 2018. We elected to reclassify the income tax effects of the 2017 U.S. tax reform from items in AOCI as of January 1, 2018 so that the tax effects of items within AOCI are reflected at the appropriate tax rate. The impact of the adoption resulted in a $47,656 decrease to AOCI and a corresponding increase to retained earnings. This amount is considered “provisional” based on reasonable estimates as the Company continues to collect and analyze detailed information about the associated impact of items under U.S. tax reform. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The guidance originally required entities to apply ASU 2016-02 on a modified retrospective basis; however, the FASB has recently proposed guidance that would allow adoption of the standard as of the effective date without restating prior periods. ASU 2016-02 is effective for us beginning January 1, 2019. We are in the process of completing an inventory of our lease arrangements and analyzing contracts for potential accounting implications in order to determine the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures. Based on our assessment to date, we expect adoption of this standard to result in a material increase in lease-related assets and liabilities on our Consolidated Balance Sheets; however, we do not expect it to have a significant impact on our Consolidated Statements of Income or Cash Flows. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815. The purpose of this ASU is to better align accounting rules with a company’s risk management activities and financial reporting for hedging relationships, better reflect economic results of hedging in financial statements, simplify hedge accounting requirements and improve the disclosures of hedging arrangements. The amendment should be applied using the modified retrospective transition method. ASU 2017-12 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We will adopt the provisions of this ASU in the first quarter of 2019. Adoption of the new standard is not expected to have a material impact on our Consolidated Financial Statements. No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures. |
BUSINESS ACQUISITION |
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition | BUSINESS ACQUISITION On January 31, 2018, we completed the acquisition of all of the outstanding shares of Amplify Snack Brands, Inc. (“Amplify”), a publicly traded company based in Austin, Texas that owns several popular better-for-you snack brands such as SkinnyPop, Oatmega, Paqui and Tyrrells. Amplify's anchor brand, SkinnyPop, is a market-leading ready-to-eat popcorn brand and is available in a wide range of food distribution channels in the United States. Total consideration of $968,781 included payment of $12.00 per share for Amplify's outstanding common stock (for a total of $907,766), as well as payment of Amplify's transaction related expenses, including accelerated equity compensation, consultant fees and other deal costs. The business enables us to capture more consumer snacking occasions by contributing a new portfolio of brands. The acquisition has been accounted for as a purchase and, accordingly, Amplify's results of operations have been included within the North America segment results in our consolidated financial statements since the date of acquisition. The purchase consideration, net of cash acquired totaling $53,324, was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:
The purchase price allocation presented above is preliminary. We are in the process of refining the valuation of acquired assets and liabilities, including goodwill, and expect to finalize the purchase price allocation by the end of 2018. In connection with the acquisition, the Company agreed to pay in full all outstanding debt owed by Amplify under its existing credit agreement as of January 31, 2018, as well as the amount due under Amplify's existing tax receivable agreement. The Company funded the acquisition and repayment of the acquired debt utilizing the proceeds from the issuance of commercial paper. Goodwill is being determined as the excess of the purchase price over the fair value of the net assets acquired (including the identifiable intangible assets) and is not expected to be deductible for tax purposes. The goodwill that will result from the acquisition is attributable primarily to cost-reduction synergies as Amplify leverages Hershey's resources, expertise and capability-building. Other intangible assets includes trademarks of $648,000 and customer relationships of $34,000. Trademarks were assigned estimated useful lives ranging from 28 to 38 years and customer relationships were assigned estimated useful lives ranging from 14 to 18 years. We used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty, and a form of the multi-period excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. Under these valuation approaches, we are required to make estimates and assumptions about sales, operating margins, growth rates, royalty rates and discount rates based on budgets, business plans, economic projections, anticipated future cash flows and marketplace data. The Company incurred acquisition-related costs of $20,577 related to the acquisition of Amplify, the majority of which were incurred during the three months ended April 1, 2018. Acquisition-related costs consisted primarily of legal fees, consultant fees, valuation fees and other deal costs and are recorded in the selling, marketing and administrative expense caption within the Consolidated Statements of Operations. |
GOODWILL AND INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets | GOODWILL AND INTANGIBLE ASSETS The changes in the carrying value of goodwill by reportable segment for the three months ended April 1, 2018 are as follows:
The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:
Total amortization expense for the three months ended April 1, 2018 and April 2, 2017 was $8,451 and $7,151, respectively. |
SHORT AND LONG-TERM DEBT |
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Debt Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short and Long-Term Debt | SHORT AND LONG-TERM DEBT Short-term Debt As a source of short-term financing, we utilize cash on hand and commercial paper or bank loans with an original maturity of three months or less. We maintain a $1.0 billion unsecured revolving credit facility, which currently expires in November 2020. This agreement also includes an option to increase borrowings by an additional $400 million with the consent of the lenders. On January 8, 2018, we entered into an additional unsecured revolving credit facility that provides for borrowings up to $1.5 billion. This facility is scheduled to expire on January 7, 2019. The credit agreement contains certain financial and other covenants, customary representations, warranties and events of default. As of April 1, 2018, we were in compliance with all covenants pertaining to the credit agreement, and we had no significant compensating balance agreements that legally restricted these funds. For more information, refer to the Consolidated Financial Statements included in our 2017 Annual Report on Form 10-K. In addition to the revolving credit facility, we maintain lines of credit with domestic and international commercial banks. We had short-term foreign bank loans against these lines of credit for $100,347 at April 1, 2018 and $110,684 at December 31, 2017. Commitment fees relating to our revolving credit facility and lines of credit are not material. At April 1, 2018, we had outstanding commercial paper totaling $2,146,138, at a weighted average interest rate of 1.8%. At December 31, 2017, we had outstanding commercial paper totaling $448,675, at a weighted average interest rate of 1.4%. Long-term Debt Long-term debt consisted of the following:
Interest Expense Net interest expense consists of the following:
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DERIVATIVE INSTRUMENTS |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments | DERIVATIVE INSTRUMENTS We are exposed to market risks arising principally from changes in foreign currency exchange rates, interest rates and commodity prices. We use certain derivative instruments to manage these risks. These include interest rate swaps to manage interest rate risk, foreign currency forward exchange contracts to manage foreign currency exchange rate risk, and commodities futures and options contracts to manage commodity market price risk exposures. In entering into these contracts, we have assumed the risk that might arise from the possible inability of counterparties to meet the terms of their contracts. We mitigate this risk by entering into exchanged-traded contracts with collateral posting requirements and/or by performing financial assessments prior to contract execution, conducting periodic evaluations of counterparty performance and maintaining a diverse portfolio of qualified counterparties. We do not expect any significant losses from counterparty defaults. Commodity Price Risk We enter into commodities futures and options contracts and other commodity derivative instruments to reduce the effect of future price fluctuations associated with the purchase of raw materials, energy requirements and transportation services. We generally hedge commodity price risks for 3- to 24-month periods. Our open commodity derivative contracts had a notional value of $397,674 as of April 1, 2018 and $405,288 as of December 31, 2017. Derivatives used to manage commodity price risk are not designated for hedge accounting treatment. Therefore, the changes in fair value of these derivatives are recorded as incurred within cost of sales. As discussed in Note 12, we define our segment income to exclude gains and losses on commodity derivatives until the related inventory is sold, at which time the related gains and losses are reflected within segment income. This enables us to continue to align the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income. Foreign Exchange Price Risk We are exposed to foreign currency exchange rate risk related to our international operations, including non-functional currency intercompany debt and other non-functional currency transactions of certain subsidiaries. Principal currencies hedged include the euro, Canadian dollar, Japanese yen, and Brazilian real. We typically utilize foreign currency forward exchange contracts to hedge these exposures for periods ranging from 3 to 12 months. The contracts are either designated as cash flow hedges or are undesignated. The net notional amount of foreign exchange contracts accounted for as cash flow hedges was $114,884 at April 1, 2018 and $135,962 at December 31, 2017. The effective portion of the changes in fair value on these contracts is recorded in other comprehensive income and reclassified into earnings in the same period in which the hedged transactions affect earnings. The net notional amount of foreign exchange contracts that are not designated as accounting hedges was $2,791 at April 1, 2018 and December 31, 2017, respectively. The change in fair value on these instruments is recorded directly in cost of sales or selling, marketing and administrative expense, depending on the nature of the underlying exposure. Interest Rate Risk We manage our targeted mix of fixed and floating rate debt with debt issuances and by entering into fixed-to-floating interest rate swaps in order to mitigate fluctuations in earnings and cash flows that may result from interest rate volatility. These swaps are designated as fair value hedges, for which the gain or loss on the derivative and the offsetting loss or gain on the hedged item are recognized in current earnings as interest expense (income), net. We had one interest rate derivative instrument in a fair value hedging relationship with a notional amount of $350,000 at April 1, 2018 and December 31, 2017. In order to manage interest rate exposure, in previous years we utilized interest rate swap agreements to protect against unfavorable interest rate changes relating to forecasted debt transactions. These swaps, which were settled upon issuance of the related debt, were designated as cash flow hedges and the gains and losses that were deferred in other comprehensive income are being recognized as an adjustment to interest expense over the same period that the hedged interest payments affect earnings. Equity Price Risk We are exposed to market price changes in certain broad market indices related to our deferred compensation obligations to our employees. To mitigate this risk, we use equity swap contracts to hedge the portion of the exposure that is linked to market-level equity returns. These contracts are not designated as hedges for accounting purposes and are entered into for periods of 3 to 12 months. The change in fair value of these derivatives is recorded in selling, marketing and administrative expense, together with the change in the related liabilities. The notional amount of the contracts outstanding at April 1, 2018 and December 31, 2017 was $29,999 and $25,246, respectively. The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets as of April 1, 2018 and December 31, 2017:
Income Statement Impact of Derivative Instruments The effect of derivative instruments on the Consolidated Statements of Income for the three months ended April 1, 2018 and April 2, 2017 was as follows:
The amount of pretax net losses on derivative instruments, including interest rate swap agreements and foreign currency forward exchange contracts expected to be reclassified from accumulated OCI into earnings in the next 12 months was approximately $6,572 as of April 1, 2018. This amount was primarily associated with interest rate swap agreements. Fair Value Hedges For the three months ended April 1, 2018 and 2017, we recognized a net pretax benefit to interest expense of $278 and $898 relating to our fixed-to-floating interest swap arrangements. |
FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | FAIR VALUE MEASUREMENTS Accounting guidance on fair value measurements requires that financial assets and liabilities be classified and disclosed in one of the following categories of the fair value hierarchy:
We did not have any level 3 financial assets or liabilities, nor were there any transfers between levels during the periods presented. The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of April 1, 2018 and December 31, 2017:
Other Financial Instruments The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and short-term debt approximated fair values as of April 1, 2018 and December 31, 2017 because of the relatively short maturity of these instruments. The estimated fair value of our long-term debt is based on quoted market prices for similar debt issues and is, therefore, classified as Level 2 within the valuation hierarchy. The fair values and carrying values of long-term debt, including the current portion, were as follows:
Other Fair Value Measurements In addition to assets and liabilities that are recorded at fair value on a recurring basis, GAAP requires that, under certain circumstances, we also record assets and liabilities at fair value on a nonrecurring basis. In connection with the Amplify acquisition, during the first quarter of 2018, as discussed in Note 2, we used various valuation techniques to determine fair value, with the primary techniques being discounted cash flow analysis, relief-from-royalty, and a form of the multi-period excess earnings valuation approaches, which use significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. During the first quarter of 2017, as discussed in Note 8, we recorded impairment charges totaling $105,992 to write-down distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition and wrote-down property, plant and equipment by $102,720. These charges were determined by comparing the fair value of the assets to their carrying value. The fair value of the assets were derived using a combination of an estimated market liquidation approach and discounted cash flow analyses based on Level 3 inputs. |
ASSETS AND LIABILITIES HELD FOR SALE ASSETS AND LIABILITIES HELD FOR SALE (Notes) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Held for Sale | ASSETS AND LIABILITIES HELD FOR SALE As of April 1, 2018, assets and liabilities relating to the following three disposal groups have been classified as held for sale, in each case stated at the lower of net book value or estimated sales value less costs to sell:
The sale of each of these disposal groups is expected to be completed before the end of 2018. The amounts classified as assets and liabilities held for sale at April 1, 2018 include the following:
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BUSINESS REALIGNMENT ACTIVITIES |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Realignment Activities | BUSINESS REALIGNMENT ACTIVITIES We are currently executing upon several business realignment initiatives designed to increase our efficiency and focus our business in support of our key growth strategies. Costs recorded during the three months ended April 1, 2018 and April 2, 2017 related to these activities are as follows:
Margin for Growth Program In the first quarter 2017, the Company's Board of Directors unanimously approved several initiatives under a single program designed to drive continued net sales, operating income and earnings per-share diluted growth over the next several years. This program is focused on improving global efficiency and effectiveness, optimizing the Company’s supply chain, streamlining the Company’s operating model and reducing administrative expenses to generate long-term savings. The Company estimates that the “Margin for Growth” program will result in total pre-tax charges of $375,000 to $425,000 from 2017 to 2019. This estimate includes plant and office closure expenses of $100,000 to $115,000, net intangible asset impairment charges of $100,000 to $110,000, employee separation costs of $80,000 to $100,000, contract termination costs of approximately $25,000, and other business realignment costs of $70,000 to $75,000. The cash portion of the total charge is estimated to be $150,000 to $175,000. The Company expects that implementation of the program will reduce its global workforce by approximately 15%, with a majority of the reductions coming from hourly headcount positions outside of the United States. For the three months ended April 1, 2018 and April 2, 2017, we recognized estimated employee severance totaling $4,048 and $29,567, respectively. These charges relate largely to our initiative to improve the cost structure of our China business, as well as our initiative to further streamline our corporate operating model. We also recognized non-cash, asset-related incremental depreciation expense totaling $717 as part of optimizing the global supply chain. In addition, for the three months ended April 1, 2018 and April 2, 2017, we also incurred other program costs totaling $10,088 and $4,822, respectively, which relate primarily to third-party charges in support of our initiative to improve global efficiency and effectiveness. The program included an initiative to optimize the manufacturing operations supporting our China business. When the program was approved in 2017, we deemed this to be a triggering event requiring us to test our China long-lived asset group for impairment by first determining whether the carrying value of the asset group was recovered by our current estimates of future cash flows associated with the asset group. Because this assessment indicated that the carrying value was not recoverable, we calculated an impairment loss as the excess of the asset group's carrying value over its fair value. The resulting impairment loss was allocated to the asset group's long-lived assets. Therefore, as a result of this testing, during the first quarter of 2017, we recorded impairment charges totaling $208,712, with $105,992 representing the portion of the impairment loss that was allocated to the distributor relationship and trademark intangible assets that had been recognized in connection with the 2014 SGM acquisition and $102,720 representing the portion of the impairment loss that was allocated to property, plant and equipment. These impairment charges are recorded in the long-lived asset impairment charges caption within the Consolidated Statements of Operations. 2016 Operational Optimization Program In the second quarter of 2016, we commenced a program (the “Operational Optimization Program”) to optimize our production and supply chain network, which includes select facility consolidations. The program encompassed the transition of our China chocolate and SGM operations into a united Golden Hershey platform, including the integration of the China sales force, as well as workforce planning efforts and the consolidation of production within certain facilities in China and North America. For the three months ended April 1, 2018, we incurred pre-tax costs totaling $1,098, relating primarily to third-party charges in support of our initiative to optimize our production and supply chain network. For the three months ended April 2, 2017, we incurred pre-tax costs totaling $12,599, primarily related to employee severance associated with the workforce planning efforts within North America. We currently expect to incur additional cash costs of approximately $7,700 over the next nine months to complete the remaining facility consolidation efforts relating to this program. Costs associated with business realignment activities are classified in our Consolidated Statements of Income for the three months ended April 1, 2018 and April 2, 2017 as follows:
On a cumulative program to date basis, the costs and related benefits of the Margin for Growth Program are approximately 50% to the North America segment and 50% to the International and Other segment. In addition, the costs and related benefits of the Operational Optimization Program relate approximately 35% to the North America segment and 65% to the International and Other segment. However, segment operating results do not include these business realignment expenses because we evaluate segment performance excluding such costs. The following table presents the liability activity for costs qualifying as exit and disposal costs for the three months ended April 1, 2018:
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INCOME TAXES |
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Income Tax Disclosure [Abstract] | |
Income Taxes | INCOME TAXES The majority of our taxable income is generated in the U.S. and taxed at the U.S. statutory rate of 21%. The effective tax rates for the three months ended April 1, 2018 and April 2, 2017 were 21.9% and 41.6%, respectively. Relative to the statutory rate, the 2018 effective tax rate was impacted by state and local taxes, partially offset by a favorable rate differential relating to foreign operations. The 2017 effective rate, relative to the previous U.S. statutory rate of 35%, was impacted by non-benefited costs resulting from the Margin for Growth Program, partially offset by a favorable foreign rate differential relating to foreign operations. Hershey and its subsidiaries file tax returns in the U.S., including various state and local returns, and in foreign jurisdictions. We believe adequate provision has been made for all income tax uncertainties. We are routinely audited by taxing authorities in our filing jurisdictions, and a number of these audits are currently underway. We reasonably expect reductions in the liability for unrecognized tax benefits of approximately $10,053 within the next 12 months because of the expiration of statutes of limitations and settlements of tax audits. U.S. Tax Cuts and Jobs Act of 2017 The U.S. Tax Cuts and Jobs Act, enacted in December 2017, (“U.S. tax reform”) significantly changed U.S. corporate income tax laws by, among other things, reducing the U.S. corporate income tax rate to 21% starting in 2018 and creating a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of U.S. subsidiaries. Under GAAP (specifically, ASC Topic 740), the effects of changes in tax rates and laws on deferred tax balances are recognized in the period in which the new legislation is enacted. During the fourth quarter of 2017, we recorded a net provisional charge of $32,500, which included the estimated impact of the one-time mandatory tax on previously deferred earnings of non-U.S. subsidiaries offset in part by the benefit from revaluation of net deferred tax liabilities based on the new lower corporate income tax rate. The impact of the U.S. tax reform may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions made, additional guidance that may be issued and actions taken by Hershey as a result of the U.S. tax reform. During the three months ended April 1, 2018, there were no adjustments to the recorded provisional amount. |
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension and Other Post-Retirement Benefit Plans | PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS The components of net periodic benefit cost for the three months ended April 1, 2018 and April 2, 2017 were as follows:
We made contributions of $1,005 and $6,444 to the pension plans and other benefits plans, respectively, during the first quarter of 2018. In the first quarter of 2017, we made contributions of $4,692 and $6,884 to our pension plans and other benefit plans, respectively. The contributions in 2018 and 2017 also included benefit payments from our non-qualified pension plans and post-retirement benefit plans. |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Compensation Plans | STOCK COMPENSATION PLANS We have various stock-based compensation programs under which awards, including stock options, performance stock units (“PSUs”) and performance stock, stock appreciation rights, restricted stock units (“RSUs”) and restricted stock may be granted to employees, non-employee directors and certain service providers upon whom the successful conduct of our business is dependent. These programs and the accounting treatment related thereto are described in Note 10 to the Consolidated Financial Statements included in our 2017 Annual Report on Form 10-K. For the periods presented, compensation expense for all types of stock-based compensation programs and the related income tax benefit recognized were as follows:
Compensation costs for stock compensation plans are primarily included in selling, marketing and administrative expense. As of April 1, 2018, total stock-based compensation cost related to non-vested awards not yet recognized was $90,074 and the weighted-average period over which this amount is expected to be recognized was approximately 2.4 years. Stock Options A summary of activity relating to grants of stock options for the period ended April 1, 2018 is as follows:
The weighted-average fair value of options granted was $15.58 and $15.78 per share for the periods ended April 1, 2018 and April 2, 2017, respectively. The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions:
The total intrinsic value of options exercised was $9,145 and $15,181 for the periods ended April 1, 2018 and April 2, 2017, respectively. Performance Stock Units and Restricted Stock Units A summary of activity relating to grants of PSUs and RSUs for the period ended April 1, 2018 is as follows:
The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future distribution to employees and non-employee directors. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant.
The fair value of shares vested totaled $15,605 and $18,883 for the periods ended April 1, 2018 and April 2, 2017, respectively. Deferred PSUs, deferred RSUs and deferred stock units representing directors’ fees totaled 358,209 units as of April 1, 2018. Each unit is equivalent to one share of the Company’s Common Stock. |
SEGMENT INFORMATION |
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Segment Reporting [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | SEGMENT INFORMATION Our organizational structure is designed to ensure continued focus on North America, coupled with an emphasis on profitable growth in our focus international markets. Our business is organized around geographic regions, which enables us to build processes for repeatable success in our global markets. As a result, we have defined our operating segments on a geographic basis, as this aligns with how our Chief Operating Decision Maker (“CODM”) manages our business, including resource allocation and performance assessment. Our North America business, which generates approximately 89% of our consolidated revenue, is our only reportable segment. None of our other operating segments meet the quantitative thresholds to qualify as reportable segments; therefore, these operating segments are combined and disclosed below as International and Other.
For segment reporting purposes, we use “segment income” to evaluate segment performance and allocate resources. Segment income excludes unallocated general corporate administrative expenses, unallocated mark-to-market gains and losses on commodity derivatives, business realignment and impairment charges, acquisition-related costs and other unusual gains or losses that are not part of our measurement of segment performance. These items of our operating income are managed centrally at the corporate level and are excluded from the measure of segment income reviewed by the CODM as well the measure of segment performance used for incentive compensation purposes. Accounting policies associated with our operating segments are generally the same as those described in Note 1 to the Consolidated Financial Statements included in our 2017 Annual Report on Form 10-K. As discussed in Note 5, derivatives used to manage commodity price risk are not designated for hedge accounting treatment. These derivatives are recognized at fair market value with the resulting realized and unrealized losses recognized in unallocated derivative (gains) losses outside of the reporting segment results until the related inventory is sold, at which time the related gains and losses are reallocated to segment income. This enables us to align the derivative gains and losses with the underlying economic exposure being hedged and thereby eliminate the mark-to-market volatility within our reported segment income. Certain manufacturing, warehousing, distribution and other activities supporting our global operations are integrated to maximize efficiency and productivity. As a result, assets and capital expenditures are not managed on a segment basis and are not included in the information reported to the CODM for the purpose of evaluating performance or allocating resources. We disclose depreciation and amortization that is generated by segment-specific assets, since these amounts are included within the measure of segment income reported to the CODM. Our segment net sales and earnings were as follows:
Activity within the unallocated mark-to-market (gains) losses on commodity derivatives is as follows:
As of April 1, 2018, the cumulative amount of mark-to-market losses on commodity derivatives that have been recognized in our consolidated cost of sales and not yet allocated to reportable segments was $31,696. Based on our forecasts of the timing of the recognition of the underlying hedged items, we expect to reclassify net pretax losses on commodity derivatives of $77,411 to segment operating results in the next twelve months. Depreciation and amortization expense included within segment income presented above is as follows:
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TREASURY STOCK ACTIVITY TREASURY STOCK ACTIVITY |
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Treasury Stock Activity | TREASURY STOCK ACTIVITY A summary of our treasury stock activity is as follows:
The $500,000 share repurchase program approved by our Board of Directors in January 2016 was completed in the first quarter of 2018. In October 2017, our Board of Directors approved an additional $100,000 share repurchase authorization, to commence after the existing 2016 authorization was completed. As of April 1, 2018, $60,000 remained available for repurchases of our Common Stock under this program. We are authorized to purchase our outstanding shares in open market and privately negotiated transactions. The program has no expiration date and acquired shares of Common Stock will be held as treasury shares. Purchases under approved share repurchase authorizations are in addition to our practice of buying back shares sufficient to offset those issued under incentive compensation plans. |
NONCONTROLLING INTEREST NONCONTROLLING INTEREST (Notes) |
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Equity [Abstract] | |||||||||||||||||||||||||||||
Noncontrolling Interest | NONCONTROLLING INTEREST We currently own a 50% controlling interest in Lotte Shanghai Foods Co., Ltd. (“LSFC”), a joint venture established in 2007 in China for the purpose of manufacturing and selling product to the venture partners. A roll-forward showing the 2018 activity relating to the noncontrolling interest follows:
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CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |
Contingencies | CONTINGENCIES We are subject to various pending or threatened legal proceedings and claims that arise in the ordinary course of our business. While it is not feasible to predict or determine the outcome of such proceedings and claims with certainty, in our opinion these matters, both individually and in the aggregate, are not expected to have a material effect on our financial condition, results of operations or cash flows. |
EARNINGS PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | EARNINGS PER SHARE We compute basic earnings per share for Common Stock and Class B common stock using the two-class method. The Class B common stock is convertible into Common Stock on a share-for-share basis at any time. The computation of diluted earnings per share for Common Stock assumes the conversion of Class B common stock using the if-converted method, while the diluted earnings per share of Class B common stock does not assume the conversion of those shares. We compute basic and diluted earnings per share based on the weighted-average number of shares of Common Stock and Class B common stock outstanding as follows:
The earnings per share calculations for the three months ended April 1, 2018 and April 2, 2017 excluded 3,689 and 2,067 stock options (in thousands), respectively, that would have been antidilutive. |
OTHER (INCOME) EXPENSE, NET OTHER (INCOME) EXPENSE, NET |
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Other (Income) Expense, Net | OTHER (INCOME) EXPENSE, NET Other (income) expense, net reports certain gains and losses associated with activities not directly related to our core operations. A summary of the components of other (income) expense, net is as follows:
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SUPPLEMENTAL BALANCE SHEET INFORMATION |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Supplemental Balance Sheet Information | SUPPLEMENTAL BALANCE SHEET INFORMATION The components of certain Consolidated Balance Sheet accounts are as follows:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||
Basis of Presentation | Basis of Presentation The unaudited consolidated financial statements provided in this report include the accounts of The Hershey Company (the “Company,” “Hershey,” “we” or “us”) and our majority-owned subsidiaries and entities in which we have a controlling financial interest after the elimination of intercompany accounts and transactions. We have a controlling financial interest if we own a majority of the outstanding voting common stock and the noncontrolling shareholders do not have substantive participating rights, or we have significant control over an entity through contractual or economic interests in which we are the primary beneficiary. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and with the rules and regulations for reporting on Form 10-Q. Accordingly, they do not contain certain information and disclosures required by GAAP for comprehensive financial statements. The financial statements reflect all adjustments which are, in our opinion, necessary for a fair presentation of the results of operations, financial position, and cash flows for the indicated periods. Operating results for the quarter ended April 1, 2018 may not be indicative of the results that may be expected for the year ending December 31, 2018 because of seasonal effects on our business. These financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2017 (our “2017 Annual Report on Form 10-K”), which provides a more complete understanding of our accounting policies, financial position, operating results and other matters. |
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Revenue Recognition, Policy | Revenue Recognition The majority of our revenue is derived by fulfilling customer orders for the purchase of our products, including chocolate, sweets, mints and other grocery and snack offerings. We recognize revenue at the point in time that control of the ordered product(s) is transferred to the customer, which is typically upon delivery to the customer or other customer-designated delivery point. Shipping and handling costs incurred to deliver product to the customer are recorded within cost of sales. Amounts billed and due from our customers are classified as accounts receivables on the balance sheet and require payment on a short-term basis. Revenue is measured as the amount of consideration we expect to receive in exchange for fulfilling product orders. Sales, value add, and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. Incidental items that are immaterial in the context of the contract are recognized as expense. The amount of consideration we expect to receive and revenue we recognize includes estimates of variable consideration, including costs for trade promotional programs, consumer incentives, and allowances and discounts associated with aged or potentially unsaleable products. These estimates are based upon our analysis of the programs offered, historical trends, expectations regarding customer and consumer participation, sales and payment trends and our experience with payment patterns associated with similar programs offered in the past. We review and update these estimates regularly and the impact of any adjustments are recognized in the period the adjustments are identified. The adjustments recognized in first quarter of 2018 and 2017 resulting from updated estimates of revenue for prior year product sales were not significant. We also recognize a minor amount of royalty income (less than 1% of our consolidated net sales) from sales-based licensing arrangements, pursuant to which revenue is recognized as the third-party licensee sales occur. The majority of our products are confectionery and confectionery-based and, therefore, exhibit similar economic characteristics, such that they are based on similar ingredients and are marketed and sold through the same channels to the same customers. See Note 12 for revenues reported by geographic segment, which is consistent with how we organize and manage our operations. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), which replaces numerous requirements in U.S. GAAP, including industry-specific requirements, and provides companies with a single revenue recognition model for recognizing revenue from contracts with customers. On January 1, 2018, we adopted the requirements of ASC Topic 606 and all the related amendments to all of our contracts using the modified retrospective method. Upon completing our implementation assessment of Topic ASC 606, we concluded that no adjustment was required to the opening balance of retained earnings at the date of initial application. The comparative information has also not been restated and continues to be reported under the accounting standards in effect for those periods. Additional disclosures required by ASC Topic 606 are presented within the aforementioned Revenue Recognition policy disclosure. In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires the income tax consequences of intra-entity transfers of assets other than inventory to be recognized when the intra-entity transfer occurs rather than deferring recognition of income tax consequences until the transfer was made with an outside party. We adopted the provisions of this ASU in the first quarter of 2018. Adoption of the new standard did not have a material impact on our Consolidated Financial Statements. In March 2017, the FASB issued ASU No. 2017-07, Compensation-Retirement Benefits (Topic 715). This ASU requires an employer to report the service cost component of net benefit cost in the same line item as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if presented, or disclosed separately. In addition, only the service cost component may be eligible for capitalization where applicable. The amendments should be applied on a retrospective basis. We adopted the provisions of this ASU in the first quarter of 2018, with retrospective adjustment to the comparative period determined using the previously disclosed service cost and other costs from our prior year pension and other post-retirement benefit plan footnote. As a result, the following amounts were reclassified in the first quarter of 2017 to correspond to the current year presentation:
The adoption of this ASU had no impact on our consolidated balance sheets or statements of cash flows. In February 2018, the FASB issued ASU No. 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU permits a company to reclassify the income tax effects of the 2017 Tax Cuts and Jobs Act (“U.S. tax reform”) on items within accumulated other comprehensive income (“AOCI”) to retained earnings. We adopted the provisions of this ASU in the first quarter of 2018. We elected to reclassify the income tax effects of the 2017 U.S. tax reform from items in AOCI as of January 1, 2018 so that the tax effects of items within AOCI are reflected at the appropriate tax rate. The impact of the adoption resulted in a $47,656 decrease to AOCI and a corresponding increase to retained earnings. This amount is considered “provisional” based on reasonable estimates as the Company continues to collect and analyze detailed information about the associated impact of items under U.S. tax reform. Recently Issued Accounting Pronouncements Not Yet Adopted In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. This ASU also requires certain quantitative and qualitative disclosures. Accounting guidance for lessors is largely unchanged. The guidance originally required entities to apply ASU 2016-02 on a modified retrospective basis; however, the FASB has recently proposed guidance that would allow adoption of the standard as of the effective date without restating prior periods. ASU 2016-02 is effective for us beginning January 1, 2019. We are in the process of completing an inventory of our lease arrangements and analyzing contracts for potential accounting implications in order to determine the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures. Based on our assessment to date, we expect adoption of this standard to result in a material increase in lease-related assets and liabilities on our Consolidated Balance Sheets; however, we do not expect it to have a significant impact on our Consolidated Statements of Income or Cash Flows. In August 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815. The purpose of this ASU is to better align accounting rules with a company’s risk management activities and financial reporting for hedging relationships, better reflect economic results of hedging in financial statements, simplify hedge accounting requirements and improve the disclosures of hedging arrangements. The amendment should be applied using the modified retrospective transition method. ASU 2017-12 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted. We will adopt the provisions of this ASU in the first quarter of 2019. Adoption of the new standard is not expected to have a material impact on our Consolidated Financial Statements. No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material impact on our consolidated financial statements or disclosures. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) |
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||
Schedule of New Accounting Pronouncements Changes | As a result, the following amounts were reclassified in the first quarter of 2017 to correspond to the current year presentation:
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BUSINESS ACQUISITION (Tables) |
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Amplify Snack Brands, Inc. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Acquisition and Divestitures [Line Items] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Purchase Consideration Allocation to Assets Acquired and Liabilities Assumed | The purchase consideration, net of cash acquired totaling $53,324, was allocated to assets acquired and liabilities assumed based on their respective fair values as follows:
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GOODWILL AND INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the Changes in the Carrying Value of Goodwill by Reportable Segment | The changes in the carrying value of goodwill by reportable segment for the three months ended April 1, 2018 are as follows:
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Schedule of Gross Carrying Amount and Accumulated Amortization for Each Major Class of Intangible Asset | The following table provides the gross carrying amount and accumulated amortization for each major class of intangible asset:
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SHORT AND LONG-TERM DEBT (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Long-term Debt Instruments | Long-term debt consisted of the following:
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Schedule of Net Interest Expense | Net interest expense consists of the following:
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DERIVATIVE INSTRUMENTS (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the Classification of Derivative Assets and Liabilities within the Consolidated Balance Sheets | The following table presents the classification of derivative assets and liabilities within the Consolidated Balance Sheets as of April 1, 2018 and December 31, 2017:
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Schedule of the Effect of Derivative Instruments on the Consolidated Statements of Income | The effect of derivative instruments on the Consolidated Statements of Income for the three months ended April 1, 2018 and April 2, 2017 was as follows:
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FAIR VALUE MEASUREMENTS FAIR VALUE MEASUREMENTS (Tables) |
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FAIR VALUE MEASUREMENTS [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Assets and Liabilities Measured at Fair Value | The following table presents assets and liabilities that were measured at fair value in the Consolidated Balance Sheet on a recurring basis as of April 1, 2018 and December 31, 2017:
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Schedule of Fair Values and Carrying Values of Long-Term Debt | The fair values and carrying values of long-term debt, including the current portion, were as follows:
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ASSETS AND LIABILITIES HELD FOR SALE ASSETS AND LIABILITIES HELD FOR SALE (Tables) |
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Discontinued Operations and Disposal Groups [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets and Liabilities Held for Sale | The amounts classified as assets and liabilities held for sale at April 1, 2018 include the following:
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BUSINESS REALIGNMENT ACTIVITIES (Tables) |
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Restructuring and Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Business Realignment Activity | Costs recorded during the three months ended April 1, 2018 and April 2, 2017 related to these activities are as follows:
Costs associated with business realignment activities are classified in our Consolidated Statements of Income for the three months ended April 1, 2018 and April 2, 2017 as follows:
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Schedule of Liability Activity for Costs Qualifying as Exit and Disposal Costs | The following table presents the liability activity for costs qualifying as exit and disposal costs for the three months ended April 1, 2018:
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PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS (Tables) |
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Retirement Benefits [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Net Periodic Benefit Cost | The components of net periodic benefit cost for the three months ended April 1, 2018 and April 2, 2017 were as follows:
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STOCK COMPENSATION PLANS (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Stock Compensation Costs | For the periods presented, compensation expense for all types of stock-based compensation programs and the related income tax benefit recognized were as follows:
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Schedule of Activity Relating to the Grants of Stock Options | A summary of activity relating to grants of stock options for the period ended April 1, 2018 is as follows:
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Schedule of Fair Value Estimated on the Grant Date and the Weighted Average Assumptions | The fair value was estimated on the date of grant using a Black-Scholes option-pricing model and the following weighted-average assumptions:
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Schedule of Activity Relating to Grants of PSUs and RSUs | A summary of activity relating to grants of PSUs and RSUs for the period ended April 1, 2018 is as follows:
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Schedule of Information Pertaining to Fair Value of PSUs and RSUs Granted for Potential Future Distribution | The following table sets forth information about the fair value of the PSUs and RSUs granted for potential future distribution to employees and non-employee directors. In addition, the table provides assumptions used to determine the fair value of the market-based total shareholder return component using the Monte Carlo simulation model on the date of grant.
|
SEGMENT INFORMATION (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Sales and Earnings by Segment | Our segment net sales and earnings were as follows:
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Schedule of Unallocated Mark-to-Market (Gains) Losses on Commodity Derivatives | Activity within the unallocated mark-to-market (gains) losses on commodity derivatives is as follows:
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Schedule of Depreciation and Amortization Expense Included within Segment Income | Depreciation and amortization expense included within segment income presented above is as follows:
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TREASURY STOCK ACTIVITY TREASURY STOCK ACTIVITY (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Treasury Stock Activity | A summary of our treasury stock activity is as follows:
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NONCONTROLLING INTEREST NONCONTROLLING INTEREST (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||
Schedule of Activity Relating to the Noncontrolling Interest | A roll-forward showing the 2018 activity relating to the noncontrolling interest follows:
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EARNINGS PER SHARE (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic and Diluted Earnings Per Share | We compute basic and diluted earnings per share based on the weighted-average number of shares of Common Stock and Class B common stock outstanding as follows:
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OTHER (INCOME) EXPENSE, NET OTHER (INCOME) EXPENSE, NET (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Other (Income) Expense, Net | A summary of the components of other (income) expense, net is as follows:
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SUPPLEMENTAL BALANCE SHEET INFORMATION (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 01, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Supplemental Balance Sheet Information | The components of certain Consolidated Balance Sheet accounts are as follows:
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - RECENT ACCOUNTING PRONOUNCEMENTS (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Cost of Goods Sold | $ (997,899) | $ (970,326) |
Selling, General and Administrative Expense | (485,324) | (459,386) |
Other Nonoperating Income (Expense) | (1,942) | (5,135) |
Reclassification from AOCI to Retained Earnings | $ 47,656 | |
Accounting Standards Update 2017-07 | ||
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | ||
Cost of Goods Sold | 2,792 | |
Selling, General and Administrative Expense | 2,514 | |
Other Nonoperating Income (Expense) | $ 5,306 |
BUSINESS ACQUISITION - AMPLIFY SNACK BRANDS, INC. ASSETS ACQUIRED AND LIABILITIES ASSUMED ALLOCATION (Details) - USD ($) $ in Thousands |
Apr. 01, 2018 |
Jan. 31, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Business Acquisition [Line Items] | |||
Goodwill | $ 1,645,274 | $ 821,061 | |
Amplify Snack Brands, Inc. | |||
Business Acquisition [Line Items] | |||
Accounts receivable | $ 41,152 | ||
Other current assets | 35,509 | ||
Plant, property and equipment, net | 71,093 | ||
Goodwill | 939,388 | ||
Other intangible assets | 682,000 | ||
Other non-current assets | 1,049 | ||
Accounts payable | 32,394 | ||
Accrued liabilities | 109,565 | ||
Current debt | 610,836 | ||
Other current liabilities | (2,931) | ||
Non-current deferred income taxes | (93,859) | ||
Non-current liabilities | (5,149) | ||
Net assets acquired | $ 915,457 |
GOODWILL AND INTANGIBLE ASSETS - SCHEDULE OF CHANGES IN CARRYING VALUE OF GOODWILL BY REPORTABLE SEGMENT (Details) $ in Thousands |
3 Months Ended |
---|---|
Apr. 01, 2018
USD ($)
| |
Goodwill [Roll Forward] | |
Goodwill, beginning balance | $ 821,061 |
Acquired during the period (see Note 2) | 939,388 |
Reclassified to assets held for sale (see Note 7) | (109,064) |
Foreign currency translation and other | (6,111) |
Goodwill, ending balance | 1,645,274 |
Operating Segments | North America | |
Goodwill [Roll Forward] | |
Goodwill, beginning balance | 799,929 |
Acquired during the period (see Note 2) | 939,388 |
Reclassified to assets held for sale (see Note 7) | (109,064) |
Foreign currency translation and other | (4,399) |
Goodwill, ending balance | 1,625,854 |
Operating Segments | International and Other | |
Goodwill [Roll Forward] | |
Goodwill, beginning balance | 21,132 |
Acquired during the period (see Note 2) | 0 |
Reclassified to assets held for sale (see Note 7) | 0 |
Foreign currency translation and other | (1,712) |
Goodwill, ending balance | $ 19,420 |
GOODWILL AND INTANGIBLE ASSETS - GOODWILL AND INTANGIBLE ASSETS NARRATIVE (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Goodwill [Line Items] | ||
Amortization of Intangible Assets | $ 8,451 | $ 7,151 |
SHORT AND LONG-TERM DEBT - SHORT-TERM DEBT NARRATIVE (Details) - USD ($) |
Apr. 01, 2018 |
Jan. 08, 2018 |
Dec. 31, 2017 |
---|---|---|---|
Line of Credit Facility [Line Items] | |||
Short-term debt | $ 2,246,485,000 | $ 559,359,000 | |
Commercial Paper | |||
Line of Credit Facility [Line Items] | |||
Short-term debt | $ 2,146,138,000 | $ 448,675,000 | |
Short-term debt, weighted average interest rate | 1.80% | 1.40% | |
Revolving Credit Facility | Line of Credit | |||
Line of Credit Facility [Line Items] | |||
Line of credit facility, accordion feature increase limit | $ 400,000,000 | ||
Revolving Credit Facility | Foreign Line of Credit | |||
Line of Credit Facility [Line Items] | |||
Short-term foreign bank loans against the lines of credit | 100,347,000 | $ 110,684,000 | |
Line of Credit | Revolving Credit Facility | |||
Line of Credit Facility [Line Items] | |||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,500,000,000 | ||
Line of Credit | Revolving Credit Facility | Line of Credit | |||
Line of Credit Facility [Line Items] | |||
Line of Credit Facility, Maximum Borrowing Capacity | $ 1,000,000,000 |
SHORT AND LONG-TERM DEBT - LONG TERM DEBT INTEREST RATES (Details) - Corporate Debt Securities |
Apr. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
1.60% Notes due 2018 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 1.60% | 1.60% |
4.125% Notes due 2020 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 4.125% | 4.125% |
8.8% Debentures due 2021 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 8.80% | 8.80% |
2.625% Notes due 2023 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 2.625% | 2.625% |
3.20% Notes due 2025 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 3.20% | 3.20% |
2.30% Notes due 2026 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 2.30% | 2.30% |
7.2% Debentures due 2027 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 7.20% | 7.20% |
3.375% Notes due 2046 | ||
Debt Instrument [Line Items] | ||
Interest rate, stated percentage | 3.375% | 3.375% |
SHORT AND LONG-TERM DEBT - SCHEDULE OF NET INTEREST EXPENSE (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Debt Disclosure [Abstract] | ||
Interest expense | $ 32,853 | $ 24,954 |
Capitalized interest | 1,299 | 984 |
Interest expense | 31,554 | 23,970 |
Interest income | (2,215) | (229) |
Interest expense, net | $ 29,339 | $ 23,741 |
FAIR VALUE MEASUREMENTS - SCHEDULE OF FAIR VALUES AND CARRYING VALUES OF LONG-TERM DEBT (Details) - USD ($) $ in Thousands |
Apr. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Current portion of long-term debt | $ 303,062 | $ 300,098 |
Long-term portion | 2,059,934 | 2,061,023 |
Long-term Debt | 2,362,996 | 2,361,121 |
Significant other observable inputs (Level 2) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Long-term Debt, Current Maturities, Fair Value | 302,418 | 299,430 |
Current portion of long-term debt | 303,062 | 300,098 |
Long-term Debt, Excluding Current Maturities, Fair Value | 2,063,730 | 2,113,296 |
Long-term portion | 2,059,934 | 2,061,023 |
Long-term Debt, Fair Value | 2,366,148 | 2,412,726 |
Long-term Debt | $ 2,362,996 | $ 2,361,121 |
FAIR VALUE MEASUREMENTS - FAIR VALUE MEASUREMENTS NARRATIVE (Details) - USD ($) |
3 Months Ended | ||
---|---|---|---|
Apr. 02, 2017 |
Apr. 01, 2018 |
Dec. 31, 2017 |
|
Margin for Growth Program | |||
Derivative [Line Items] | |||
Impairment of Intangible Assets (Excluding Goodwill) | $ 105,992,000 | ||
Impairment of Long-Lived Assets Held-for-use | $ 102,720,000 | ||
Significant other unobservable inputs (Level 3) | |||
Derivative [Line Items] | |||
Fair Value, Net Asset (Liability) | $ 0 | $ 0 |
ASSETS AND LIABILITIES HELD FOR SALE ASSETS AND LIABILITIES HELD FOR SALE (Details) - USD ($) $ in Thousands |
Apr. 01, 2018 |
Dec. 31, 2017 |
---|---|---|
Discontinued Operations and Disposal Groups [Abstract] | ||
Accounts receivable | $ 25,001 | |
Inventories | 8,804 | |
Prepaid expenses and other | 2,827 | |
Long-lived assets | 182,354 | |
Non-current assets | 13,008 | |
Assets | 231,994 | $ 21,124 |
Accounts payable and accrued liabilities | 26,804 | |
Other long-term liabilities | 2,114 | |
Liabilities | $ 28,918 | $ 0 |
BUSINESS REALIGNMENT ACTIVITIES - SCHEDULE OF LIABILITY ACTIVITY FOR COSTS QUALIFYING AS EXIT AND DISPOSAL COSTS (Details) $ in Thousands |
3 Months Ended |
---|---|
Apr. 01, 2018
USD ($)
| |
Restructuring Reserve [Roll Forward] | |
Liability balance at December 31, 2017 | $ 38,992 |
2018 business realignment charges | 13,215 |
Cash payments | (22,353) |
Other, net | 669 |
Liability balance at April 1, 2018 | $ 30,523 |
INCOME TAXES - INCOME TAXES (Details) - USD ($) $ in Thousands |
3 Months Ended | |||
---|---|---|---|---|
Apr. 01, 2018 |
Dec. 31, 2017 |
Apr. 02, 2017 |
Dec. 31, 2018 |
|
Income Tax Contingency [Line Items] | ||||
Effective income tax rate reconciliation, at federal statutory income tax rate, percent | 21.00% | |||
Effective income tax rate reconciliation, percent | 21.90% | 41.60% | ||
Tax Cuts and Jobs Act of 2017, Net Impact Change in Tax Rate and Mandatory Tax on Unremitted Foreign Earnings, Income Tax Expense (Benefit) | $ 32,500 | |||
Scenario, Forecast | ||||
Income Tax Contingency [Line Items] | ||||
Significant change in unrecognized tax benefits is reasonably possible, amount of unrecorded benefit | $ 10,053 |
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS - SCHEDULE OF COMPONENTS OF NET PERIODIC BENEFIT COST (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Pension Benefits | ||
Amounts recognized in net periodic benefit cost | ||
Service cost | $ 5,335 | $ 5,174 |
Interest cost | 7,839 | 10,299 |
Expected return on plan assets | (14,766) | (14,354) |
Amortization of prior service (credit) cost | (1,799) | (1,456) |
Amortization of net loss | 6,687 | 8,422 |
Total net periodic benefit cost | 3,296 | 8,085 |
Other Benefits | ||
Amounts recognized in net periodic benefit cost | ||
Service cost | 58 | 65 |
Interest cost | 1,732 | 2,208 |
Expected return on plan assets | 0 | 0 |
Amortization of prior service (credit) cost | 209 | 187 |
Amortization of net loss | 0 | 0 |
Total net periodic benefit cost | $ 1,999 | $ 2,460 |
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS - PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS NARRATIVE (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Pension Benefits | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Employer contributions | $ 1,005 | $ 4,692 |
Other Benefits | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Employer contributions | $ 6,444 | $ 6,884 |
STOCK COMPENSATION PLANS - SCHEDULE OF COMPENSATION EXPENSE AND INCOME TAX BENEFITS FOR STOCK-BASED COMPENSATION PROGRAMS (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Pre-tax compensation expense | $ 10,458 | $ 12,122 |
Related income tax benefit | $ 2,604 | $ 3,818 |
STOCK COMPENSATION PLANS - SCHEDULE OF FAIR VALUE WEIGHTED-AVERAGE ASSUMPTIONS (Details) |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Dividend yields | 2.30% | 2.40% |
Expected volatility | 16.60% | 17.20% |
Risk-free interest rates | 2.80% | 2.20% |
Expected term in years | 6 years 7 months | 6 years 10 months |
STOCK COMPENSATION PLANS - SCHEDULE OF PSUs AND RSUs ACTIVITY (Details) - Performance and restricted stock units - $ / shares |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward] | ||
Outstanding at beginning of year (shares) | 923,364 | |
Granted (shares) | 302,947 | 351,793 |
Performance assumption change (shares) | (113,461) | |
Vested (shares) | (157,152) | |
Forfeited (shares) | (31,181) | |
Outstanding as of April 1, 2018 (shares) | 924,517 | |
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract] | ||
Outstanding at beginning of year (USD per share) | $ 103.11 | |
Weighted-average fair value at date of grant (USD per share) | 98.27 | $ 111.28 |
Performance assumption change | 101.59 | |
Vested (USD per share) | 105.83 | |
Forfeited (USD per share) | 105.47 | |
Outstanding as of April 1, 2018 (USD per share) | $ 102.09 |
STOCK COMPENSATION PLANS - SCHEDULE OF PSUs AND RSUS FAIR VALUE WEIGHTED-AVERAGE ASSUMPTIONS (Details) - $ / shares |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Dividend yields | 2.30% | 2.40% |
Performance and restricted stock units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Units granted (shares) | 302,947 | 351,793 |
Weighted-average fair value at date of grant (USD per share) | $ 98.27 | $ 111.28 |
Estimated values (USD per share) | $ 29.17 | $ 46.85 |
Dividend yields | 2.60% | 2.30% |
Expected volatility | 20.40% | 20.40% |
- SEGMENT INFORMATION NARRATIVE (Details) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
---|---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
Dec. 31, 2018 |
|
North America | Geographic Concentration Risk | Sales Revenue, Goods, Net | |||
Revenue, Major Customer [Line Items] | |||
Concentration Risk, Percentage | 89.00% | ||
Operating Segments | Commodities futures and options | |||
Revenue, Major Customer [Line Items] | |||
Net Gain Loss On Commodity Derivative Positions Reclassified From Unallocated Derivative Gains Losses To Segment Income | $ (29,660) | $ (22,624) | |
Scenario, Forecast | Operating Segments | Commodities futures and options | |||
Revenue, Major Customer [Line Items] | |||
Net Gain Loss On Commodity Derivative Positions Reclassified From Unallocated Derivative Gains Losses To Segment Income | $ (77,411) | ||
Cost of Sales | Commodities futures and options | |||
Revenue, Major Customer [Line Items] | |||
Derivative, Gain (Loss) on Derivative, Net | $ (31,696) |
SEGMENT INFORMATION - SCHEDULE OF UNALLOCATED MARK-TO-MARKET (GAINS) LOSSES ON COMMODITY DERIVATIVES (Details) - Commodities futures and options - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Segment Reconciling Items | ||
Segment Reporting Information [Line Items] | ||
Net Mark to Market Valuation of Certain Derivative Positions Recognized in Unallocated Derivative Gains Losses | $ 96,250 | $ 17,088 |
Operating Segments | ||
Segment Reporting Information [Line Items] | ||
Net Gain Loss On Commodity Derivative Positions Reclassified From Unallocated Derivative Gains Losses To Segment Income | (29,660) | (22,624) |
Non-designated Hedges | ||
Segment Reporting Information [Line Items] | ||
Derivative, Gain (Loss) on Derivative, Net | $ (66,590) | $ 5,536 |
- SCHEDULE OF DEPRECIATION AND AMORTIZATION EXPENSE INCLUDED WITHIN SEGMENT INCOME (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Segment Reporting Information [Line Items] | ||
Depreciation and amortization | $ 74,416 | $ 64,952 |
Operating Segments | North America | ||
Segment Reporting Information [Line Items] | ||
Depreciation and amortization | 47,985 | 41,237 |
Operating Segments | International and Other | ||
Segment Reporting Information [Line Items] | ||
Depreciation and amortization | 14,288 | 12,966 |
Corporate, Non-Segment | Corporate (1) | ||
Segment Reporting Information [Line Items] | ||
Depreciation and amortization | $ 12,143 | $ 10,749 |
TREASURY STOCK ACTIVITY - SCHEDULE OF TREASURY STOCK ACTIVITY (Details) |
3 Months Ended |
---|---|
Apr. 01, 2018
USD ($)
shares
| |
Class of Stock [Line Items] | |
Total share repurchases (in shares) | shares | 1,791,554 |
Shares issued for stock options and incentive compensation (in shares) | shares | (273,289) |
Net change (in shares) | shares | 1,518,265 |
Total share repurchases | $ | $ 178,073,000 |
Shares issued for stock options and incentive compensation | $ | (11,372,000) |
Net change | $ | $ 166,701,000 |
Employee stock options | |
Class of Stock [Line Items] | |
Total share repurchases (in shares) | shares | 385,461 |
Total share repurchases | $ | $ 38,073,000 |
Common stock | |
Class of Stock [Line Items] | |
Total share repurchases (in shares) | shares | 1,406,093 |
Total share repurchases | $ | $ 140,000,000 |
TREASURY STOCK ACTIVITY - NARRATIVE (Details) - USD ($) $ in Thousands |
Apr. 01, 2018 |
Oct. 26, 2017 |
Jan. 31, 2016 |
---|---|---|---|
2016 Share Repurchase Program | |||
Class of Stock [Line Items] | |||
Authorized stock repurchase amount | $ 500,000 | ||
2017 Share Repurchase Program | |||
Class of Stock [Line Items] | |||
Authorized stock repurchase amount | $ 100,000 | ||
Remaining authorized repurchase amount | $ 60,000 |
NONCONTROLLING INTEREST - NARRATIVE (Details) |
Apr. 01, 2018 |
---|---|
Lotte Shanghai Food Company | Noncontrolling Interests in Subsidiaries | |
Noncontrolling Interest [Line Items] | |
Noncontrolling Interest, Ownership Percentage by Parent | 50.00% |
NONCONTROLLING INTEREST - SCHEDULE OF ACTIVITY RELATING TO THE NONCONTROLLING INTEREST (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Noncontrolling Interest [Line Items] | ||
Balance, December 31, 2017 | $ 16,227 | |
Net income (loss) attributable to noncontrolling interests | 516 | $ (26,796) |
Balance, April 1, 2018 | 17,527 | |
Noncontrolling Interests in Subsidiaries | ||
Noncontrolling Interest [Line Items] | ||
Balance, December 31, 2017 | 16,227 | |
Net income (loss) attributable to noncontrolling interests | 516 | |
Other comprehensive income - foreign currency translation adjustments | 784 | |
Balance, April 1, 2018 | $ 17,527 |
EARNINGS PER SHARE - EARNINGS PER SHARE NARRATIVE (Details) - shares shares in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Employee stock options | ||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Antidilutive securities excluded from computation of earnings per share (shares) | 3,689 | 2,067 |
OTHER (INCOME) EXPENSE, NET - SCHEDULE OF OTHER (INCOME) AND EXPENSE, NET (Details) - USD ($) $ in Thousands |
3 Months Ended | |
---|---|---|
Apr. 01, 2018 |
Apr. 02, 2017 |
|
Other Income and Expenses [Abstract] | ||
Write-down of equity investments in partnerships qualifying for tax credits | $ 434 | $ 0 |
Non-service cost components of net periodic benefit cost relating to pension and other post-retirement benefit plans | (98) | 5,306 |
Other (income) expense, net | 1,606 | (171) |
Total | $ 1,942 | $ 5,135 |
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